Nevada Health CO-OP is shutting down by Jan. 1, the not-for-profit health plan announced Wednesday. It is now the third co-op to fold, and data suggest it's possible other co-ops may follow suit.
“The majority of them are still reporting losses,” said Sally Rosen, assistant vice president at ratings agency A.M. Best Co., which has tracked the financial performance of co-ops. “There is some concern about them.”
The closure in Nevada also reinforces how difficult it is for new insurers to enter a marketplace that is dominated by large carriers with noticeable brands and footprints, such as local Blue Cross and Blue Shield plans and national giants like Aetna and Anthem.
“I do think it is one of the most, if not the most, difficult industries to start up in,” Sabrina Corlette, project director at Georgetown University's Center on Health Insurance Reforms, said in a recent interview.
Nevada Health CO-OP cited “challenging market conditions” for its closure. Its medical-loss ratio was 103.5% as of March 31, according to a report from A.M. Best released last week. That meant it was paying out more to cover medical services than it was receiving in member premiums. It also had a 45.6% administrative expense ratio, signaling high costs for labor, technology and back-office operations.
“With a second year of high claims costs and limited opportunities for new investment, it has become clear that the amount of growth required to provide quality care at reasonable rates will be unlikely in the next plan year,” Nevada Health CO-OP CEO Pam Egan said in a news release.
Louisiana Health Cooperative announced in July that it was voluntarily shutting down operations. CoOportunity Health, which sold policies in Iowa and Nebraska, was liquidated and forced to close earlier this year.
The Affordable Care Act created consumer-governed, not-for-profit co-ops as a way to build competition in the new individual insurance market. The CMS doled out $3.8 billion in startup and solvency loans, lower than originally appropriated. Nevada Health CO-OP received $66 million in federal loans.
The challenge for co-ops has been finding a long-term business plan after those loans run dry. “It is not uncommon for startups to report a loss,” Rosen said. “The issue is these companies don't have outside sources of capital.”
Deep Banerjee, an analyst at Standard & Poor's, said co-ops may also face problems after two of the ACA's risk-mitigation programs go away. The healthcare law created the risk adjustment, risk corridors and reinsurance programs, which essentially help insurers weather the initial wave of the newly insured from potentially high claims costs. Two of those programs, risk corridors and reinsurance, expire after 2016. “A lot of these co-ops are reliant on the three Rs working,” Banerjee said.
A.M. Best's report shows a majority of the nation's 22 co-ops have combined medical and administrative expense ratios above 100%. The HMO and PPO plans at Meritus in Arizona had medical loss ratios of 98.4% and 85.6%, respectively, and administrative expenses pushed the company deep into the red, according to the report. Minuteman Health in Massachusetts had a lower loss ratio of 68.7%, but administrative expenses ate up 82.8% of premiums.
Nevada Health CO-OP's departure will leave a big hole in Nevada's exchange market. Open enrollment begins Nov. 1, and consumers will have to shop for plans with other carriers. The co-op had 21,300 members as of the first quarter this year. Nevada's exchange population was about 63,000 at that time.
Kelly Crowe, CEO of the National Alliance of State Health Co-ops, released a statement that echoed her tone from July, when Louisiana Health Cooperative said it was closing. “The Nevada Health CO-OP made a responsible decision to cease offering plans after the end of the year based on the financial and marketplace realities it was facing in Nevada in the near future,” Crowe said. “It does not reflect the specific situation for all co-ops, which are helping to reshape the health insurance landscape across the country.”
Crowe added that co-ops “are still in the early chapters of a book that's far from (being) completed.”