More analyses of the Affordable Care Act's not-for-profit health insurers indicate that high medical claims and net losses are not the exception but the rule in their first months of operation.
The co-op plans, heavily criticized by Republicans, will need to be monitored closely over the next several months to see if any others face the same fate as the failed CoOportunity Health, two new reports said.
Last month the Iowa Insurance Division ordered the closure of CoOportunity, one of 23 not-for-profit co-op insurance companies funded by the Affordable Care Act. The healthcare law created the co-ops as an alternative to the politically charged public option and to foster competition in the individual marketplaces.
Iowa commandeered CoOportunity, which enrolled about 100,000 individual and group members in Iowa and Nebraska, in late December because steep losses were overwhelming the plan. Premium revenue was insufficient to cover enrollees' high use of medical services and the CMS denied any extra funding. A potential lifeline for co-ops was endangered in late 2014 when Congress required the risk-corridor program to become revenue-neutral as part of an omnibus spending bill.
New reports show that several co-ops were in similar or worse financial situations late last year. Co-ops in many states gained membership by offering low premiums, but that strategy, along with their relatively small sizes, made them more vulnerable to catastrophic medical claims.
Standard & Poor's looked at the financial statements of the 23 co-ops from the first nine months of 2014 (ratings agency A.M. Best Co. conducted a similar review in January). S&P found that nine-month net losses ranged from $2.9 million to $39.8 million. CoOportunity had the largest loss, but its deficit as a percentage of its remaining funds was only 53%. That figure was near the median—an ominous sign for other co-ops that struggled during Obamacare's first open-enrollment period.
“Some of these numbers don't look very good for these companies,” said Deep Banerjee, an analyst at S&P and author of the co-op report.
Eleven co-ops—Arches Health Plan in Utah, Colorado HealthOP, Community Health Alliance in Tennessee, Consumers Mutual Insurance of Michigan, Evergreen Health Cooperative in Maryland, Health Republic Insurance of Oregon, HealthyCT in Connecticut, Land of Lincoln Health in Illinois, Meritus Health Partners in Arizona, Minuteman Health in Massachusetts and Nevada Health CO-OP—had net loss-to-surplus ratios that were worse than CoOportunity's. That means their net losses represented a larger portion of their remaining funds compared with CoOportunity's, as of Sept. 30.
Community Health Alliance, Tennessee's co-op, had a net loss-to-surplus ratio of 314%, the highest of any co-op. Last month, the insurer froze all enrollments on Tennessee's insurance exchange for 2015 but expects to enroll people again for 2016.
S&P also said medical-loss ratios, or the percentage of premiums that go toward paying medical claims, were “hopelessly high” for several co-ops, indicating that many sicker patients opted for a co-op plan. The Robert Wood Johnson Foundation and University of Pennsylvania found the same high costs of claims in their report, noting that several co-ops had higher medical and administrative expenses than CoOportunity.
However, there are some caveats to looking at only the first nine months of co-ops' financial data, Banerjee said. Other co-ops received additional funding from the CMS, while others may have improved their cost management since Sept. 30. That shouldn't lead to immediate speculation that other co-ops will collapse, he said. “We wanted to highlight that some of these co-ops were at the same level or worse off than CoOportunity,” Banerjee said.
CoOportunity continues to be a source of contention in Congress. Three Republican senators, Joni Ernst and Chuck Grassley of Iowa and Deb Fischer of Nebraska, sent a letter to outgoing CMS Administrator Marilyn Tavenner Monday demanding to know how the government is going to help CoOportunity members, some of whom have already made out-of-pocket payments toward their deductibles.
“Had CMS made funding decisions for the co-ops prior to the start of open enrollment, CoOportunity would not have been on the marketplace, and these individuals would not be facing their current predicament,” the senators wrote.
Follow Bob Herman on Twitter: @MHbherman
