CareSource is looking to bring one of the last remaining Affordable Care Act cooperatives under its umbrella.
The nonprofit insurer signed a letter of intent with Common Ground Healthcare Cooperative, a Wisconsin-based individual marketplace and small group insurer, the companies said in a news release Tuesday. The Wisconsin cooperative represents one of just three still operating, according to a Georgetown University Center for Health Insurance Reforms report. If federal regulators approve the proposed affiliation, Common Ground will be released from the co-op program, a CareSource spokesperson wrote in an email.
Through the proposed deal, Common Ground would become a subsidiary of CareSource, which counts 2.3 million Medicaid, Medicare Advantage and exchange members across nine states. It would give CareSource a foothold in the competitive Wisconsin insurance market and an entrance into the small group business. Competitors Humana and Molina Healthcare both finalized insurance acquisitions in Wisconsin last year.
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Common Ground CEO Cathy Mahaffey would continue to oversee the Wisconsin market for the combined insurer, according to the news release. The deal is subject to state and federal officials' regulatory approval and the green light from a portion of Common Ground’s 54,000 members.
The CareSource spokesperson said the affiliation was not a financial transaction. If the deal is finalized, Common Ground would remain a nonprofit insurer, but would no longer be governed by its members, he wrote.
Common Ground, created in 2012, has spent years looking for a partner to help expand its operations, Mahaffey said in the news release.
“It’s challenging as a nonprofit startup to support necessary investments in operations and diversification while keeping premiums affordable for our members,” Mahaffey said.
Common Ground reported $11.4 million in net income during the third quarter of 2023, down 28% from the $15.9 million reported for the year-ago period, according to a state regulatory filing. Revenue rose 7.7% to $336.7 million.
Early on, the Centers for Medicare and Medicaid Services offered health insurance co-ops loans to start and run the business. CareSource is on track to repay CMS in full, Mahaffey said in the release. The insurer plans to repay CMS the remaining $65 million it owes federal regulators if the transaction is closed, a spokesperson said.
The Affordable Care Act of 2010 established 23 health insurance cooperatives, but most went bankrupt in 2017 after low premiums and unexpectedly small reimbursements from the ACA’s risk-adjustment program led to depleted reserves, the Georgetown report said.
Financial difficulties led some co-ops to seek outside partners. Evolent Health paid an undisclosed sum to buy a portion of New Mexico Health Connections’ business in 2017, for example. Three years later, the New Mexico co-op shut down after its board of directors declared it financially unsustainable.
The New Mexico co-op's closure underscores why cooperatives partnering with or selling to outside companies is rare, said Ari Gottlieb, an independent healthcare consultant. Most of them shuttered before the exchange business stabilized, he said.
“A lot of them failed when the individual market was pretty challenged and no one wanted to buy their business, whereas now it’s fairly profitable,” Gottlieb said.
Over the past few years, more carriers have rushed back into the marketplaces as the market stabilized and the potential for financial returns has grown.
CareSource this month partnered with venture capital investment firm Boomerang Ventures to jointly finance and develop healthcare technology startups. It also finalized a joint venture with Henry Ford Health-owned Health Alliance Plan in August, giving it a presence in the Michigan market. In June, the carrier paid an undisclosed sum to buy nonprofit hospice and senior housing operator Radiant Alliance.
Private equity firm Welsh, Carson, Anderson and Stowe previously invested an undisclosed sum in CareSource’s for-profit management services organization.