The Affordable Care Act intended for there to be a consumer-governed co-op plan in every state, but Congress scaled back the program's funding, leaving 23 co-ops by the time the new marketplaces opened in 2013. Now, only 11 are still standing, and many of those remaining are skating on thin financial ice.
Pent-up demand from sick consumers and restricted federal funding doomed the co-ops that closed, Faigin said. Co-ops were prohibited from spending loan money on advertising, and they also had limited ability to raise additional capital, which could have helped plug the losses in the short term.
“There were a lot of reasons out of our control that caused the co-ops to close,” Faigin said. “We were really hamstrung in our funding operations.”
Faigin said she and Zumtobel joined Melody, a startup headquartered in Denver, because they wanted to improve the experience of people buying their own health insurance. “We feel like there's a need in the market for a company that's built for individual health plans,” she said.
Melody plans on launching in Las Vegas and Cheyenne, Wyo., this fall for 2017 open enrollment. The insurer will only sell on- and off-exchange plans that are compliant with the ACA, and it is acquiring insurance licenses. Melody hopes to move into two new markets a year going forward, Faigin said.
Sal Gentile and David Pinkert, former executives at TriZetto Corp., an information technology company that provides services to health plans and third-party benefits administrators, founded Melody last year. They raised $3.8 million in funding in December. Eduardo Cruz, CEO of ARS Humano, a health insurer in the Dominican Republic, led the first funding round, and the insurer is actively pursuing another round.
Gentile serves as Melody's CEO, and Pinkert is the chief operating officer.