Obamacare Health Insurance Cooperatives Face Significant Risks
 

On December 23, 2014, the Iowa Commissioner of Insurance took over management of CoOpportunity Health Inc., one of the 23 nonprofit health insurance Co-Operatives established under Section 1322(c) of the Affordable Care Act. The Department of HHS had awarded Co-Opportunity low interest loans for $15.4 million to fund initial startup and $130.6 million as a solvency reserve. The terms were that the startup loan would be repaid to the Federal Government within 5 years and the solvency loan within 15 years.

To some extent, CoOpportunity was a victim of its own success. It had enrolled over 120,000 members, which was far more than it had initially projected. However, claims received greatly exceeded premium revenue. In a court filing, the Iowa Commissioner of Insurance indicated that CoOpportunity had incurred a net loss of $45.8M during the period January 1, 2014 to October 1, 2014. As of December 12, 2014, CoOpportunity reported cash and invested assets of approximately $17,2M. Although CoOpportunity was not technically bankrupt, it was deemed to be in hazardous financial condition, which prompted the takeover by the state.

According to the State Insurance Commissioner, enrollees who signed up for CoOpportunity health insurance after December 15, 2014 will not be accepted. Those who signed up on or before December 15, 2014 will continue to be covered. However, current insurees may not be eligible for subsidies from the Federal Government under the Provisions of ACA. This is because state law limits the state’s liability for claims, which could disallow designation as a qualified health plan.

Current members of the CoOpportunity health plans are being urged to find other health plans. The only other insurer offering health plans on the Iowa Health Exchange, and thus the only insurer eligible for federal subsidies, is Coventry Health. A bronze level plan offered by Coventry would cost a 52 year-old male with self-only coverage $457 per month before subsidies with a $5750 deductible. Iowa’s largest health insurer, Wellmark Blue Cross/Blue Shield, does not offer plans on the Exchange.

CoOpportunity had been expecting a $60M Risk Corridor payment from DHHS in FY15. Risk Corridors were a provision of the ACA intended to spread underwriting risk between profitable and unprofitable health insurers. However, Congress included a provision in the FY15 Omnibus Continuing Resolution Appropriation that prohibited the use of FY15 appropriations to fund Risk Corridor payments. The concern in Congress was that taxpayer funds could be used to bail out poorly managed health insurance firms. On December 14, 2014, DHHS advised CoOpportunity that it would not provide it with additional solvency funding.

At present, no other Co-Ops have been reported to be in the same financial stress as CoOpportunity. However there are several factors which may place financial pressures on the remaining Co-Ops. These include:

•          The nonprofit Co-Ops must make a profit in order to pay off their Government loans within the 5 and 15 year time periods. This may lessen the perceived competitive advantage of being a nonprofit.

•          As startups, the Co-Ops may not have sufficient experience with, or knowledge of, the insurance risk environment in order to correctly price their coverage.

•          The Co-Ops may attract a large number of previously uninsurable individuals (adverse selection), which could lead to higher than expected claims.

•          A large proportion of Co-Op enrollees may be poor, uninsured individuals who could not afford healthcare without the subsidies they can obtain on the healthcare exchanges. These individuals will tend to be sicker and have a higher claim rate than the general population.

•          Initially, high administrative costs may result in losses before enrollment picks up. This can jeopardize Co-Op solvency.

•          A failure of other insurers to join the exchanges may concentrate risks on the Co-Ops.

•          Congress may continue to withhold risk spreading payments for which the Federal Government might be accountable.

•          Policy holders who will eventually be responsible for operating the Co-Ops may have a bias toward keeping insurance premiums lower than required to maintain solvency.

In view of all the potential financial stresses the Co-Ops may face, State and Federal Regulators must be alert to act quickly on any solvency concerns. Such quick action may be necessary to protect both policy holders and US taxpayers.