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.