Oregon's co-op health plans face risks as state's exchange flounders

The disastrous rollout of Oregon's state-run health insurance exchange could prove particularly troublesome for the state's two fledgling consumer-governed co-op plans.

Oregon is the only state in the country with more than one not-for-profit, “consumer operated and oriented plan” (CO-OP). These co-op plans were authorized and funded by the Patient Protection and Affordable Care Act to enhance competition and consumer value in the insurance market. They were added to the ACA in part to compensate for Democrats' failure to get a public insurance option into the law. Advocates say co-op plans would provide more consumer-friendly coverage.

Both Health Republic Insurance and Oregon's Health CO-OP are competing for customers in the revamped individual and small group marketplaces. But in the more than two months since it was supposed to open for business, Cover Oregon, the state's exchange, has yet to enroll a single individual for coverage through the online marketplace. State officials had promised to have the site functioning by mid-December, but that deadline has not been met.

Co-op plans in other states around the country that either rely on the federal exchange or have a sputtering state-run exchange, such as Maryland, are facing similar enrollment challenges.

As of last week, Dr. Ralph Prows, president and CEO of Oregon's Health CO-OP, said his plan had not received a single enrollment from Cover Oregon. Instead, the plan has been focusing on signing up individuals directly. “Cover Oregon's problems have reduced the likelihood of any significant enrollment in the first quarter (of 2014),” Prows said. “There's no doubt it's going to be a fraction of what anybody thought it would be.”

Similarly, Health Republic Insurance has seen paltry enrollments through Cover Oregon, according to CEO Dawn Bonder. That plan also has shifted its focus to direct enrollments and is working closely with insurance brokers. But individuals who sign up through those channels can't access federal premium subsidies.

Start-up insurers could be more vulnerable to the problems of the state and federal exchanges than larger and well-established insurers. That's because they don't have an existing book of business to provide financial cover. They need premium revenues right away to pay their bills and pay off their substantial federal loans. In addition, preliminary data suggest that co-op plans set premiums lower than their competitors in the marketplace. There are 23 co-op plans operating around the country. They have received roughly $2 billion in low-interest loans through the federal healthcare law. Those funds were designed to help them weather any start-up difficulties and provide reserves for claims. But they are prohibited from using any of that federal loan money for marketing purposes.

Further complicating matters in Oregon, many of the state's insurers—including Regence Blue Cross and Blue Shield of Oregon and Kaiser Foundation Health Plan of the Northwest—are renewing health plans for 2014 that don't comply with the requirements of the federal healthcare reform law. The Obama administration announced last month that insurers would have that option in response to an outcry from individuals who received plan cancellation notices. That means the pool of customers seeking new Obamacare-compliant coverage through the exchange and directly through insurers will be smaller than anticipated.

Former HHS Secretary Michael Leavitt, who now runs a firm that consults on insurance exchange issues, put the situation facing the fledgling not-for-profit insurers starkly at a conference organized by America's Health Insurance Plans on Thursday. "They're either going to make it big or they're going to be casualties,” Leavitt said.

Kev Coleman, director of research and data at HealthPocket, worries that the fledgling insurers will attract a disproportionately unhealthy population that will drive up their premiums in 2015 and make their products unattractive. “If you're a UnitedHealthcare or a Kaiser or a Humana, there's a lot you can absorb in terms of market shock,” Coleman said. “If you're a new entrant, it becomes much harder.”

But officials with the two Oregon not-for-profit groups say they're not in any immediate danger. Under the healthcare law, they each can tap into nearly $60 million in funds as needed.

“I have no concern whatsoever about not being able to pay member claims,” said Bonder, of Health Republic Insurance. “We definitely will be able to meet our obligations. Hopefully 2015 will be a lot smoother and a lot more in line with what we expected.”

Prows is similarly confident that Oregon's Health CO-OP can weather the early troubles. “Any new health plan is going to have challenges in 2014 that were never considered in the business plans,” he said. “Fortunately we do have access to funding that will easily carry us through 2014 into 2015 and 2016.”

Jesse Ellis O'Brien, healthcare advocate with the consumer advocacy group OSPIRG, said there's already some evidence that the co-op plans have helped create greater competition in the insurance marketplace. Most notably, when rates were initially disclosed in May, a couple of firms sought to adjust their premiums because they were significantly higher than those of their competitors.

“We hope they live up to their promise,” O'Brien said of the co-op plans. “It's early days yet.”

Follow Paul Demko on Twitter: @MHpdemko