Louisiana Health Cooperative, the state's not-for-profit health plan created through the Affordable Care Act, will close by year-end. It's the second co-op casualty in less than a year, and a sign that many other co-ops are on life support.
Louisiana's plan suffered from high-cost medical claims and low enrollment in the state's insurance exchange. The ACA created the consumer-governed co-op option to inject competition into the individual market. But the plans have faced steep operating challenges, including sicker-than-average memberships, slashed federal funding and less name recognition than larger carriers.
“These co-ops were essentially competitively disadvantaged from the beginning,” said Joseph Marinucci, a health insurance analyst at ratings agency Standard & Poor's. “They're doing business in one of the riskiest product markets where they very much lack a supplemental product line and diversity.”
Louisiana Health Cooperative was asking the state for a 23% premium hike for 2016 health plans, the highest of any insurer in the state. The company lost $5.7 million in 2014, according to state rate filings. LHC's medical-loss ratio was 113%, which means for every dollar it collected in consumer premiums, it had to pay out $1.13 to cover healthcare services. Prescription drugs, higher provider rates and other medical costs were forcing the co-op to push up premium rates.
Those pressures were ultimately too difficult to handle, so LHC decided to shut down operations by Dec. 31. The 16,000 Louisiana residents with LHC coverage will have to shop for new plans during the next open-enrollment period. Five other insurers sell plans on Louisiana's exchange: Aetna, Blue Cross and Blue Shield of Louisiana, Humana, UnitedHealthcare and Vantage Health Plan.
LHC “has sustained itself over the last few years, but is not growing enough to maintain a healthy future,” Louisiana Health Cooperative CEO Greg Cromer said in a news release (PDF). “By proactively and voluntarily addressing our situation now, (LHC) will be in a position to maintain all of its policies in force through the end of the year, and to cover all outstanding claims and operating expenses.”
Executives were not immediately available for further comment.
When LHC shutters its doors, 21 co-op plans will remain. CoOportunity Health, the former co-op for Iowa and Nebraska, was the program's first plan to go under when it closed in February.
Many other co-ops across the country have had worse financial problems than CoOportunity and LHC, which bodes ominously for their future. But co-op supporters said the fall of another plan does not indicate the program, as a whole, is failing.
“The fact that Louisiana Health Cooperative will not offer plans for 2016 and begin to cease operations at the end of the year does not detract from the very real contributions co-ops are providing across the country,” Kelly Crowe, CEO of the National Alliance of State Health Co-ops, said in a statement. “Indeed, without the presence of a co-op, many already concentrated health insurance markets would have very little in the way of choice and competition.”
LHC's enrollment only represents about 11% of the 150,000 people who bought a health plan on the state's federally run exchange. Blue Cross and Blue Shield of Louisiana is the state's dominant insurer, and competing with the popular Blues brand has proved challenging for many co-ops, Marinucci said.
Other co-ops have set low premiums to attract a larger membership base, which would spread the risk. That strategy partially led to the decline of CoOportunity, which grew too fast and signed up a disproportionately high number of sick customers.
“What do they have to separate themselves?” Marinucci said of co-ops. “You can only work off aggressive pricing assumptions for so long.”
Sabrina Corlette, project director at Georgetown University's Center on Health Insurance Reforms, said co-ops have provided a much-needed alternative for people who buy in the individual insurance market. Although she says some co-ops will eventually do well, she predicts more will fail because the barrier to entry in health insurance “is so high.”
“I don't think this is going to be the last failure we're going to see,” Corlette said. “I do think it is one of the most, if not the most, difficult industries to start up in.”