Many of the new consumer-governed, not-for-profit health plans launched thanks to the Affordable Care Act were in shaky financial shape in their first nine months of operation and will need to be closely monitored, raising questions about the reform law's method of boosting insurance competition.
Standard & Poor's, looking at financial statements of the 23 consumer-operated and -oriented plans from the first nine months of 2014, found that net losses ranged from $2.9 million to $39.8 million. The now-insolvent CoOportunity Health, serving Iowa and Nebraska, had the largest loss. Its deficit as a percentage of its remaining funds was 53%, which was near the median for co-op plans.
S&P said medical-loss ratios were “hopelessly high” for several plans. “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.
In a separate report, the Robert Wood Johnson Foundation and the University of Pennsylvania found that several co-op plans had higher medical and administrative expenses than CoOportunity had.
The ACA authorized startup loans to co-op plans as an alternative to establishing a publicly run insurance plan to compete against private insurers in the new exchange markets. Republicans and insurers opposed the new co-op plans. Supporters stressed the plans would need time to build strength.
Many co-op plans gained membership by offering lower premiums than their rivals. But that strategy, along with their small size and lack of bargaining clout, made them more vulnerable to high medical claims.
Last month, the Iowa Insurance Division ordered the closure of CoOportunity, which enrolled about 100,000 individual and group members. Premium revenue was insufficient to cover enrollees' high use of medical services and the CMS denied any extra funding.
Eleven co-op plans—including plans in Arizona, Colorado, Connecticut, Illinois, Maryland, Massachusetts, Michigan, Nevada, Oregon, Tennessee and Utah—had net loss-to-surplus ratios that were worse than CoOportunity's as of Sept. 30.
Community Health Alliance, Tennessee's co-op plan, had the highest net loss-to-surplus ratio at 314%. Last month, the plan froze all enrollments on Tennessee's insurance exchange for 2015 but expects to enroll people again for 2016.
Banerjee noted that some co-op plans received additional funding from the CMS, while others may have improved their cost management since Sept. 30. The report shouldn't lead to immediate speculation that other co-ops will collapse, he said.