Sick, costly patients who never had health insurance or had it only intermittently battered the finances of the not-for-profit co-op plans over the past two years, three co-op leaders said during an industry call this week. In many instances, those patients received expensive cancer treatments for the first time or got a transplant.
Twelve of the Affordable Care Act's 23 co-ops have either closed or will cease to exist by the end of this year. Many of those closures occurred after the federal government announced it would be paying only a sliver of the promised payments under the law's risk-corridor program, which was intended to help plans cover losses in the first years of the insurance exchanges.
Industry insiders say the co-op collapse could have been avoided had Congress not stymied those payments.
“I think most of them could've weathered through the other problems had it not been for the default on the risk-corridor payments,” said Barbara Smith, a principal at consulting firm Health Management Associates. Smith was the founding director of the co-op division at the CMS' Center for Consumer Information and Insurance Oversight, or CCIIO.
Earlier this year, the CMS said it would pay insurers only 12.6% of their risk-corridor requests, leaving a shortfall of $2.5 billion. Although the feds have promised to pay out those amounts, and many insurers could sue to obtain those payments, much damage has already been done.
Arches Health Plan, the ACA-funded co-op in Utah that will shut down by year's end, suffered heavily from not receiving full risk-corridor payments, said Arches CEO Shaun Greene. Although he said Arches had a relatively healthy member base, many high-cost cases hammered the health insurer's coffers.
There's the axiom in health insurance that 5% of members will represent 50% of claims. At Arches, only 200 people—or 0.3% of its 63,000 members—accounted for 50% of its claims. Oncology care and organ transplants, in particular, hit Arches and many co-ops hard. Green said there was a lot of pent-up demand from people who previously could not access affordable policies or pay for the care out of pocket.
“The risk was a lot worse than anybody had expected,” Greene said during the call.
Sherri Huff, a consultant who used to be chief financial officer of the still-functioning Common Ground Healthcare Cooperative in Wisconsin, echoed Greene's take. By the end of January 2014, the first full month when ACA exchange coverage went live, Common Ground had 19 people requesting transplants, she said.
“We saw very little of the young and healthy,” Huff said. “A lot of that is due to unmet need.”
Arches actually heard from three hospitals “that indicated a willingness” to pitch in money to save the co-op because they viewed the co-op as their “growth engine,” Greene said. But the deal never happened because regulators didn't give enough time for a full evaluation.
“We were only given 20 hours to sign term sheets, which was a ridiculous request,” Greene said. He also criticized CCIIO, saying the agency “went from being a pretty good partner to being completely erratic and unreliable,” which he said could be partly blamed on congressional politics.
Conservative states that failed to expand Medicaid to more adults also played a role in the demise of many co-ops, leaders said. The ACA gave states the option to expand Medicaid eligibility to people who earn up to 138% of the federal poverty level, but many red states have declined to do so.
Utah and Wisconsin did not expand Medicaid, and the co-ops in those states consequently had many sick, low-income enrollees who would have qualified for Medicaid expansion, Greene and Huff said. Many of those people bought silver-level plans and received both the premium and cost-sharing subsidies, and the poorest among them had 94% of their healthcare costs covered by their insurer and subsidies.
“The failure to have the Medicaid expansion ends up putting a lot of higher-need people with very challenging circumstances into the exchange plans,” Smith said. “That will definitely be a factor in every state that did not expand Medicaid.”
The short-term outlook remains bleak for many of the remaining co-ops and other small and mid-sized health insurers that sell exchange plans. The recently signed budget bill included the same risk-corridors provision (PDF) from last year's deal, which requires those payments to be budget-neutral. The ACA did not require the risk-corridor program to be budget-neutral.
The co-op observers said the exchanges still have a path to viability. They suggested the CMS tinker with the risk-adjustment program and tighten the special enrollment periods so fewer people can hop in and out of coverage. But they said the risk pool has to include more of the so-called young invincibles who use fewer healthcare services.
“The expectation was and remains that this would even out over the first couple years,” Smith said. “People would get their medical issues addressed, and these people would start to stabilize. I still think that is largely the case. 2017 will be a better year for the plans in terms of adverse risk selection.”
“There's still a lot of bad risk out there,” Greene added, “and it's going to be a few more years before we see stabilization in the individual market.”