Financial health shaky at many Obamacare insurance co-ops
By Amy Goldstein
October 10 - The Washington Post
A new breed of health insurers created under the Affordable Care Act —
representing one of the governmentfs most innovative attempts in decades to
foster better coverage — is on shaky financial ground in many of the 23 states
where the plans began.
The nonprofit health plans were envisioned as a consumer-friendly
counterweight to for-profit insurers, a way to provide more competition, greater
consumer choice and better coverage in markets typically dominated by big
commercial carriers. The government allocated billions of dollars in loans for
them.
But in recent months, nearly half of the unorthodox start-ups
have been told by federal regulators that their finances, enrollment or business
model need to shape up.
The Centers for Medicare and Medicaid Services (CMS), which oversees the
health-care law, recently sent warning letters to 11 of the gco-ops,h as theyfre
known. The agency placed them on genhanced oversighth or required them to
produce a plan of gcorrective action,h or both, according to federal figures not
previously made public. Several have been notified in the past two weeks.
Amid this increased monitoring, one co-op has folded, stranding its members,
and four others are preparing to close in late December. They include the Nevada
Health Co-Op, which was initially among a top tier that federal officials had
regarded as best poised to succeed.
CMS sent it a warning July 30. The four-page letter listed the planfs
shortcomings, pointed out the governmentfs power to rescind $65.9 million
in loans it had provided early on and asked what the co-op was going to do about
its problems.
Twenty-seven days later, the board of directors gave an answer: It was going
out of business.
The birth and quick death of these co-ops illustrate the programfs fragility.
When the ACA was enacted in 2010, the Consumer Operated and Oriented Plans were
a compromise to appease congressional liberals who had wanted a new public
insurance program for Americans unable to get health benefits at work.
Yet the co-opsf struggle of late also reflects regulatorsf shifting posture.
In moves that could affect coverage for hundreds of thousands of people, CMS has
gone from nurturing to getting tough.
The agency says the scrutiny is needed to help prop up faltering plans or, if
that is not possible, to avoid abrupt shutdowns that would force consumers to
buy new coverage mid-year.
Others disagree. gItfs kind of like the ACA is eating its young,h said Martin
Hickey, chief executive of New Mexicofs co-op and board chairman of the co-opsf
national association. Hickey and other plansf leaders, as well as some health
policy experts, contend that the increased vigilance is largely what one called
gan optical response,h a strategy to buffer the Obama administration from fresh
criticism by Republicans, who have spent the past five years attacking the
law.
The precariousness of many co-ops — and the governmentfs response — is
drawing attention as doubts about other parts of the law subside. In June, the
Supreme Court issued the second of two major rulings since 2012 that upheld core
elements of the statute. And after a disastrous start two years ago because of a
technological debacle, the ACAfs federal and state-run exchanges have become
conduits to insurance for nearly 10 million people.
The co-ops, however, are among less prominent aspects of the law with less
certain fates.
The first plan to collapse served people in Iowa and Nebraska; it folded in
February after being taken over by state insurance regulators. In July,
Louisianafs co-op revealed it was shutting down. Then late last month in New
York state, the nationfs largest co-op toppled, startling insurance industry and
health policy analysts who thought it was too big for the government to let
fail.
The latest announcement came Friday, when the Kentucky Health Cooperative,
serving about 51,000 customers, said that it, too, will close Dec. 31 because of
poor finances. gIn plainest language, things have come up short of where they
need to be,h the co-opfs leader said.
Federal health officials — usually loath to foreshadow bad news — have said
more closure announcements may come before the Nov. 1 start of the third
open-enrollment season for Americans to buy coverage through ACA insurance
exchanges.
gThe reality of this business is, itfs just tough,h said
Kevin Counihan, CMSfs chief executive for the ACA marketplaces. gOn balance, the
co-ops are working. Are they working uniformly? No.h
The co-op disappearances are disrupting coverage for nearly 400,000 customers
across five states, according to the most recent publicly available enrollment
figures. But the ripple effects could be broader. Research has suggested that in
the states in which they were created, insurance premiums were typically
9 percent lower than elsewhere in the country.
As co-ops shut down, their supporters say, the decreased competition probably
will lead to higher rates in those states.
The program has been under siege from the start, including from the insurance
industry. Before the lawfs passage, government grants to help them get going
were switched to loans. None of that money could go for advertising — a wounding
rule for new insurers that needed to attract customers. Moreover, the amount
available was cut from $10 billion to $6 billion and then later, as
part of the administrationfs budget deals with congressional Republicans, to
$2.4 billion. Federal health officials abandoned plans for a co-op in every
state.
At the time, some health policy experts warned that the constraints would
make it difficult for some co-ops to thrive. Most of the plans predicted that
they would not break even for their first few years.
The recent gyrations are those forecasts coming true. By June 30, all but one
co-op had enrolled more people than at the end of 2014, according to data on
file with the National Association of Insurance Commissioners. All but three
continued to run financial losses, though. Some of the net losses were smaller
than six months earlier, but for five co-ops they were worse. Nine had eroded
capital.
The stresses have been magnified, Standard & Poorfs analyst Deep Banerjee
and other experts say, by recent twists and turns in the way the health-care law
is being carried out. These include an ACA grisk adjustmenth program intended to
balance out the finances of insurers in the exchanges that have sicker customers
and those with healthier members. Its first year ended with 17 co-ops owing
payments to other insurers.
In August, federal officials delayed another type of
assistance intended to help cushion the risk of covering the previously
uninsured. This temporary grisk corridorh money was cut last week to a small
fraction of what many co-ops had been banking on. The Kentucky co-op blamed its
demise on its cut — from an expected $77 million to less than $10
million.
The experience of the once-promising Nevada Health Co-Op, which is in
court-approved receivership, demonstrates the growing pains of trying to break
into the insurance market in the ACA era. An outgrowth of a large Culinary Union
health plan for Las Vegas hotel and restaurant workers, the co-op was able to
open with an existing stable of doctors, a built-in data system and expertise in
managing care. The statefs high uninsured rate meant lots of people needed to
get coverage.
Some insurance brokers were wary. gWhy would I want to put my life into the
hands of a rookie?h said Patrick Casale, who sells health insurance in Las
Vegas.
Others promoted the co-opfs generally lower rates, health advocates and
greater freedom for members to see preferred doctors. gThat personal touch,
rather than, eHerefs a 1-800 number,f h said Alberto Ochoa, who enrolled nearly
400 clients in the plan.
Even so, in part because of the planfs own computer troubles, just half of
the nearly 34,000 members expected were signed up during the first year. And by
this past winter, state regulators began worrying about its finances, according
to a source familiar with the statefs insurance industry. A senior federal
official close to the program said that CMS asked the co-op for more financial
data in May and paid a visit in June, followed by its July 30 letter.
That notice and the delayed risk-corridor payment gpushed the board to make
some real hard decisions,h said an official highly familiar with the co-op who
spoke on the condition of anonymity to discuss its internal deliberations. gThe
co-op was able to overcome hurdle after hurdle but could not see what the future
held with CMS.h
Rudelene Rachiele, a 63-year-old breast cancer survivor in Henderson, Nev.,
worries about the consequences. She found the co-op easy to deal with when she
needed to have her breast implants replaced and wonders whether another insurer
will be as accommodating.
gIfm not happy,h Rachiele said. gI just donft want to go through the
hassle.h
Amy Goldstein is a national reporter for The Washington Post focused on health-care policy.