Skip to main content
Sister Publication Links
  • ESG: THE IMPLEMENTATION IMPERATIVE
Subscribe
  • Sign Up Free
  • Login
  • Subscribe
  • News
    • Current News
    • Providers
    • Insurance
    • Digital Health
    • Government
    • Finance
    • Technology
    • Safety & Quality
    • Transformation
    • People
    • Regional News
    • Digital Edition (Web Version)
    • Patients
    • Operations
    • Care Delivery
    • Payment
    • Midwest
    • Northeast
    • South
    • West
  • Unwell in America
  • Opinion
    • Bold Moves
    • Breaking Bias
    • Commentaries
    • Letters
    • Vital Signs Blog
    • From the Editor
  • Events & Awards
    • Awards
    • Conferences
    • Galas
    • Virtual Briefings
    • Webinars
    • Nominate/Eligibility
    • 100 Most Influential People
    • 50 Most Influential Clinical Executives
    • Best Places to Work in Healthcare
    • Excellence in Governance
    • Health Care Hall of Fame
    • Healthcare Marketing Impact Awards
    • Top 25 Emerging Leaders
    • Top 25 Innovators
    • Diversity in Healthcare
      • - Luminaries
      • - Top 25 Diversity Leaders
      • - Leaders to Watch
    • Women in Healthcare
      • - Luminaries
      • - Top 25 Women Leaders
      • - Women to Watch
    • Digital Health Transformation Summit
    • ESG: The Implementation Imperative Summit
    • Leadership Symposium
    • Social Determinants of Health Symposium
    • Women Leaders in Healthcare Conference
    • Best Places to Work Awards Gala
    • Health Care Hall of Fame Gala
    • Top 25 Diversity Leaders Gala
    • Top 25 Women Leaders Gala
    • - Hospital of the Future
    • - Value Based Care
    • - Hospital at Home
    • - Workplace of the Future
    • - Digital Health
    • - Future of Staffing
    • - Hospital of the Future (Fall)
  • Multimedia
    • Podcast - Beyond the Byline
    • Sponsored Podcast - Healthcare Insider
    • Video Series - The Check Up
    • Sponsored Video Series - One on One
  • Data Center
    • Data Center Home
    • Hospital Financials
    • Staffing & Compensation
    • Quality & Safety
    • Mergers & Acquisitions
    • Data Archive
    • Resource Guide: By the Numbers
    • Surveys
    • Data Points
  • MORE+
    • Contact Us
    • Advertise
    • Media Kit
    • Newsletters
    • Jobs
    • People on the Move
    • Reprints & Licensing
MENU
Breadcrumb
  1. Home
  2. Government
January 03, 2015 12:00 AM

Startup insurer's collapse raises fears about co-op finances

Paul Demko
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    “I don't know ofany others thatare on the brink. I can't tell youthat they aren't.” Dr. Martin Hickey Board chairman of the National Alliance of State Health Co-Ops and CEO of New Mexico Health Connections

    The financial collapse of CoOportunity Health, a not-for-profit insurer that achieved major enrollment success in Iowa and Nebraska, likely will lead to intensified scrutiny of other new co-op plans by state regulators and congressional Republicans.

    The fate of the fledgling insurer, established under the provisions of the healthcare reform law, also should serve as a cautionary tale for startup insurers looking to gain market share by offering low premiums in the Obamacare exchanges, where customers' medical costs are difficult to predict. But many co-op plans that struggled to attract customers during the first year of open enrollment are using aggressive pricing to be more competitive in the current open enrollment.

    CoOportunity had been hemorrhaging cash in the weeks leading up to the Iowa Department of Insurance's decision to seize control of the plan. The insurer received $146 million in low-interest loans from the federal government. In the first 10 months of 2014, the firm lost $45.7 million. By last month, the insurer's cash and investments had eroded to $17.2 million. It appears unlikely its federal loans will ever be repaid.

    Iowa Insurance Commissioner Nick Gerhart was appointed “rehabilitator” of the insurer, which is no longer accepting new members. Gerhart said he would try to make decisions that will allow CoOportunity to remain in business. If that's not possible, then he'll seek to liquidate its remaining assets. The plan's customers will continue to have coverage, with benefits guaranteed by the state. The only other insurer participating in the Iowa exchange is Coventry Health Care. Nebraska residents will have two remaining options—Aetna and Blue Cross and Blue Shield of Nebraska.

    Dana McNeill, CoOportunity's vice president for corporate communications, said her plan's future is uncertain. “Folks shouldn't panic,” she said. “As long as they have paid their premiums, they have coverage.”

    Obamacare opponents seized on the collapse of CoOportunity as evidence that the consumer-operated and -oriented plans, which were started with more than $3 billion in federal loans authorized by the Patient Protection and Affordable Care Act, are government boondoggles. Congressional Republicans likely will look for ways to ratchet up pressure on co-op plans to prove that they are capable of repaying their federal loans.

    “The Obamacare house of cards is beginning its collapse in Iowa,” Sen. Rand Paul (R-Ky.) wrote on Twitter.

    The ACA's Democratic authors intended the not-for-profit, consumer-governed co-op plans to increase competition in the insurance market, driving down premiums and improving service. They crafted the co-op plan program as a compromise when it became clear that their preferred approach—creating a public insurance plan to compete with private insurers—would derail passage of the reform bill.

    Indeed, co-ops are offering the lowest-cost silver-tier plans for 2015 in all or large parts of nine states, including Illinois and New Jersey, according to the National Alliance of State Health Co-Ops.

    But whether CoOportunity's insolvency presages future financial problems for the 22 other co-op plans is hard to predict because there's limited financial information about the plans. “I don't know of any others that are on the brink,” said Dr. Martin Hickey, board chairman of the National Alliance of State Health Co-Ops and CEO of New Mexico Health Connections, that state's co-op plan. “I can't tell you that they aren't.”

    CoOportunity seems to have been a victim of its own enrollment success. It attracted about 120,000 customers for 2014, 10 times what it had anticipated. When those customers proved more expensive than hoped, the losses mounted.

    Robert Laszewski, an insurance industry consultant, said it's a “yellow flag” when a new insurance entrant garners a disproportionate share of the market. Unlike more established insurers, the new co-op plans lack the leverage to negotiate favorable rates with healthcare providers and have no claims history on which to reliably set premiums.

    MH Takeaways

    Co-op plans that signed up large numbers of enrollees may be at greater risk because of their lack of claims history, bargaining clout and reserves.

    Two other factors played a role in hastening CoOportunity's meltdown. The CMS rejected its application for $55 million in additional loan dollars. And congressional Republicans pushed through a provision as part of the recent federal budget deal that put in jeopardy $60 million in future risk-corridor payments to CoOportunity. Those payments were designed to mitigate financial risk for insurers that signed up too many sick and costly customers.

    Jeff Goldsmith, a veteran healthcare consultant, said he's surprised that there haven't been more co-op failures already, noting that startups in any business area have a high failure rate. Insurance experts say co-op insurers that captured a large share of the market in 2014, such as co-op plans in Kentucky and Maine, could be candidates for future financial duress because they may have priced their products too low for their medical costs.

    Mark Rust, an attorney who represents co-op plans in Connecticut and Illinois, said startup insurers don't have the large reserves that established carriers can rely on to soften any mistakes in pricing products.

    Both Kentucky Health Cooperative and Maine Community Health Options garnered nearly 80% of exchange customers in those states during the first open-enrollment period. They each recently received $65 million in solvency funding from the CMS.

    “The co-op program was built understanding it would take two or three years before a co-op would be in a position to get to a steady state and begin to achieve the financial operative results/performance that would allow them to start repaying the federal loans,” Janie Miller, CEO of Kentucky Health Cooperative, said in a written statement.

    Another co-op plan that is facing financial pressure is Health Republic Insurance of New York, which captured 19% of the state's individual exchange market, more than any of the other 18 carriers competing for customers.

    A recent analysis by Citi Research found that the co-op plan accrued losses of roughly $2 million in the third quarter and was $15 million in the red for the year. Health Republic's medical-loss ratio—the percentage of premium revenue that was paid out in claims—in the third quarter was 93%. That number ticked upward in each of the first three quarter of 2014.

    Goldsmith said that a high medical-loss ratio is not sustainable in the long run. “It's lethally high,” he said. “That's where you don't want to be.”

    Health Republic was awarded an additional $90.7 million in federal loan dollars in September.

    Follow Paul Demko on Twitter: @MHpdemko

    Letter
    to the
    Editor

    Send us a letter

    Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.

    Recommended for You
    Abortion clinic
    Idaho hospital halts obstetrical care as abortion laws become stricter
    mh_20160711p29_bills_i.jpg
    State, local governments pay off medical debt relief with COVID funds
    Most Popular
    1
    More healthcare organizations at risk of credit default, Moody's says
    2
    Centene fills out senior executive team with new president, COO
    3
    SCAN, CareOregon plan to merge into the HealthRight Group
    4
    Blue Cross Blue Shield of Michigan unveils big push that lets physicians take on risk, reap rewards
    5
    Bright Health weighs reverse stock split as delisting looms
    Sponsored Content
    Modern Healthcare Alert: Sign up for this breaking news email to be kept in the loop as urgent healthcare business news unfolds.
    Get Newsletters

    Sign up for enewsletters and alerts to receive breaking news and in-depth coverage of healthcare events and trends, as they happen, right to your inbox.

    Subscribe Today
    MH Magazine Cover

    MH magazine offers content that sheds light on healthcare leaders’ complex choices and touch points—from strategy, governance, leadership development and finance to operations, clinical care, and marketing.

    Subscribe
    Connect with Us
    • LinkedIn
    • Twitter
    • Facebook
    • RSS

    Our Mission

    Modern Healthcare empowers industry leaders to succeed by providing unbiased reporting of the news, insights, analysis and data.

    Contact Us

    (877) 812-1581

    Email us

     

    Resources
    • Contact Us
    • Advertise with Us
    • Ad Choices Ad Choices
    • Sitemap
    Editorial Dept
    • Submission Guidelines
    • Code of Ethics
    • Awards
    • About Us
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Modern Healthcare
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • News
      • Current News
      • Providers
      • Insurance
      • Digital Health
      • Government
      • Finance
      • Technology
      • Safety & Quality
      • Transformation
        • Patients
        • Operations
        • Care Delivery
        • Payment
      • People
      • Regional News
        • Midwest
        • Northeast
        • South
        • West
      • Digital Edition (Web Version)
    • Unwell in America
    • Opinion
      • Bold Moves
      • Breaking Bias
      • Commentaries
      • Letters
      • Vital Signs Blog
      • From the Editor
    • Events & Awards
      • Awards
        • Nominate/Eligibility
        • 100 Most Influential People
        • 50 Most Influential Clinical Executives
        • Best Places to Work in Healthcare
        • Excellence in Governance
        • Health Care Hall of Fame
        • Healthcare Marketing Impact Awards
        • Top 25 Emerging Leaders
        • Top 25 Innovators
        • Diversity in Healthcare
          • - Luminaries
          • - Top 25 Diversity Leaders
          • - Leaders to Watch
        • Women in Healthcare
          • - Luminaries
          • - Top 25 Women Leaders
          • - Women to Watch
      • Conferences
        • Digital Health Transformation Summit
        • ESG: The Implementation Imperative Summit
        • Leadership Symposium
        • Social Determinants of Health Symposium
        • Women Leaders in Healthcare Conference
      • Galas
        • Best Places to Work Awards Gala
        • Health Care Hall of Fame Gala
        • Top 25 Diversity Leaders Gala
        • Top 25 Women Leaders Gala
      • Virtual Briefings
        • - Hospital of the Future
        • - Value Based Care
        • - Hospital at Home
        • - Workplace of the Future
        • - Digital Health
        • - Future of Staffing
        • - Hospital of the Future (Fall)
      • Webinars
    • Multimedia
      • Podcast - Beyond the Byline
      • Sponsored Podcast - Healthcare Insider
      • Video Series - The Check Up
      • Sponsored Video Series - One on One
    • Data Center
      • Data Center Home
      • Hospital Financials
      • Staffing & Compensation
      • Quality & Safety
      • Mergers & Acquisitions
      • Data Archive
      • Resource Guide: By the Numbers
      • Surveys
      • Data Points
    • MORE+
      • Contact Us
      • Advertise
      • Media Kit
      • Newsletters
      • Jobs
      • People on the Move
      • Reprints & Licensing