The Affordable Care Act’s health insurance co-ops absorbed deep financial losses last year, and 2016 is shaping up to be a make-or-break year for these nonprofit alternatives to traditional insurers.
Officially called Consumer Operated and Oriented Plans, these still-fledgling insurers were devised during the ACA’s creation to inject competition into insurance markets. But they have struggled from the start to build a customer base from scratch and deal with higher-than-expected expenses, among other problems.
Heading into their third full year of operation, the co-ops are adding customers and improving their coverage, but they also face the end of some government programs designed to support insurers as they build business on the ACA’s public insurance exchanges. They will have to determine soon whether their businesses can stand on their own and compete with more established carriers.
“Plan year 2016 is a critical year for these co-ops — they must move from startup to stability and improve their financial capabilities,” said Kevin Counihan, CEO of the federal exchange operator HealthCare.gov, during a Thursday hearing held by the Senate’s Homeland Security & Government Affairs Committee.
A dozen of the 23 co-ops created under the law have closed, and many of the survivors lost well over $20 million last year, according to recently filed annual statements compiled by the National Association of Insurance Commissioners.
Nevada Health Co-op was one of the casualties.
The nonprofit launched in 2012 with $65.9 million in federal loans and sponsorship by the Culinary Union’s Culinary Health Fund, its national parent UNITE HERE Health and consumer advocate Health Services Coalition.
It initially served its mission: The co-op had more than a third of Nevada Health Link’s market in the 2013 enrollment period, beating out major players UnitedHealth Group and Anthem Blue Cross and Blue Shield.
But the co-op slid from the top spot in 2014 and 2015. Financial documents from the Centers for Medicare and Medicaid Services showed a $19.3 million operating deficit in 2014, plus an additional loss of $22.7 million in the first seven months of 2015.
The co-op pulled the plug on its operation in August, saying it couldn’t survive past Jan. 1 because of a second year of high claims costs and limited growth projections for enrollment.
Industry observers blamed the failure on early problems, including network mix-ups, trouble paying specialists and lenient rules for sometimes-unhealthy patients signing up outside the enrollment period.
The co-op also had significant overhead: The U.S Health and Human Services Department’s Inspector General pegged the co-op’s administrative expense-to-premium ratio at 37 percent — almost double the 20 percent allowed under the Affordable Care Act.
Clark County District Court granted the Nevada Division of Insurance receivership of the co-op in September. In October, the nonprofit stopped paying commissions to brokers who had enrolled clients in coverage.
Glimpses of success
But some co-ops have fared better. They’ve hit a national growth spurt and now cover more than 350,000 people, or nearly triple their total from 2014. Enrollment is growing better than expected and patient populations appear to be getting younger and healthier in some cases. That can help cut future expenses.
Plus, the co-ops are learning more about their patient population, which can help them price future coverage to cover claims.
These insurers knew 2015 would be ugly, according to Kelly Crowe, CEO of the trade association the National Alliance of State Health Co-Ops. But she said last year’s numbers don’t reflect where the co-ops stand today. Crowe noted that many are growing methodically and adding more stable, employer-sponsored coverage.
“We’re optimistic that they will continue to grow and be a viable alternative for people in selecting their health care,” she said. “They are still financially fragile, though. There obviously is still some risk there, as there is with any start up business.”
Maryland’s Evergreen Health Cooperative did the best of the remaining co-ops in 2015, booking a loss of $10.8 million. Land of Lincoln Mutual Health Insurance Co. in Illinois lost $90.8 million.
Maine’s Community Health Options made $7.3 million in 2014 but lost $74 million last year. More than half of that stemmed from a reserve the insurer set aside to cover future losses.
Both the Maine and Illinois co-ops say higher-than-expected costs hurt them in 2015.
Hospital and medical expenses for Community Health Options more than doubled to $354.7 million, something CEO Kevin Lewis attributes in part to pent-up demand from people who had been waiting for coverage in order to seek treatment. A nearly $55-million reinsurance payment from the federal government helped ease that blow.
But that program, which aims to help insurers pay big medical bills, will end after this year.
Hoping for profit in ‘16
Maryland’s Evergreen Health should turn a profit in 2016, according to CEO Dr. Peter Beilenson.
He said $7.3 million of Evergreen’s 2015 loss came from a payment the insurer had to make for a federal risk adjustment program. That program aims to help insurers with high-cost patients by giving them payments from carriers with healthier patient populations.
Beilenson and other co-op leaders say the formula for calculating this risk adjustment is skewed to favor established insurers, and they are talking with government officials about adjusting it.
Evergreen Health wound up running a profit in three of the last six months of 2015, and Beilenson said its newer enrollees have been healthier than initial customers who signed up for coverage because they needed care right away.
Montana Health Cooperative also might turn a profit this year, according to CEO Jerry Dworak. The insurer lost about $40.7 million last year, but Dworak said $31 million of that came from a charge it took when the federal government delivered only a fraction of a payment due under another program designed to limit insurer losses.
The co-op raised premiums 36 percent on average without losing any business. It also dropped an unprofitable plan and caught a break when a state Medicaid expansion took away high-cost patients.
“Everything we’ve done seems to be working,” he said. “Of course, we won’t know for sure for several months … but so far, we have seen a positive turn from 2015.”
Review-Journal writer Jennifer Robison contributed to this report.