Of all the new cooperative insurers, the one led by a Blue Cross veteran attracting droves of exchange and employer members might seem the least likely to fail. Now the success of every co-op will be in question.
CoOportunity Health, selling in Iowa and Nebraska, has been taken into "rehabilitation" by Iowa Insurance Commissioner Nick Gerhart. Gerhart concluded that the company is "in a hazardous financial condition," and sought and received court permission to take it over.
West Des Moines-based CoOpportunity was created in 2012 with $145 million in federal loans and its individual and group plans garnered about 120,000 members in 2014. But the dynamics of its loans, premium revenue and medical costs left Gerhart worried about the potential for a solvency death spiral.
Gerhart said the company has "insufficient capitalization," with an inability to access additional capital from the Centers for Medicare & Medicaid Services, a six month gap until 2014's risk sharing payments are received, and "extremely high healthcare utilization."
Under the rehabilitation, Gerhart will assume management and operations, try to "correct existing problems," maintain policyholder accounting, and develop a remediation plan. Gerhart said he also might petition the court for liquidation, if the company cannot be turned around.
CoOportunity's existing membership in both Iowa and Nebraska can remain in the plans, although those who purchased exchange plans after December 15 are required to buy plans from another issuer and Gerhart said the rest "may find it in their best interests to find other coverage." Nebraska Insurance Director Bruce Ramge has also suspended the company's license to sell or renew policies.
CoOportunity Health did not challenge the action by Gerhart, and is not speculating on the potential outcome. "Our first priority is transition of policyholders to alternative coverage options," said Dana McNeill, VP of communications. "We will do everything we can to ensure a smooth transition for individuals and employers groups in Iowa and Nebraska that had enrolled in one of our health plans."
The nonprofit is one of 23 cooperative health insurers operating in 26 states created with loans under the Affordable Care Act, and has been among the most promising for consumers and healthcare advocates -- offering a new model for health insurance and a competitive alternative to dominant Blue Cross and for-profit companies.
Parable for new cooperative growth
Originally called Midwest Members Health, CoOportunity Health was spearheaded by David Lyons, a former Iowa Insurance Commissioner and development officer at the Iowa Farm Bureau Federation, and Cliff Gold, former senior vice president of marketing and strategy at Wellmark Blue Cross and Blue Shield of Iowa and South Dakota.
Gold left Wellmark in 2008, but was recruited out of retirement in San Diego by Lyons, whose farm bureau members were and remain among Wellmark's client base. In an interview in early 2014, Gold said he was drawn to the idea of a new consumer-focused insurance experience because it seemed to him nonprofit Blue Cross insurers had "strayed from their mission."
Wellmark and Blue Cross and Blue Shield of Nebraska each continue to have more than 50 percent market share in Iowa and Nebraska; Aetna's Coventry also has a foothold. Gold believed both states were ripe for new competition, and that a co-op might even be able to enter a third state market.
For the ACA exchanges' first open enrollment, CoOportunity's plans were in many places priced to sell. In Nebraska, contending with Coventry and BCBS of Nebraska, CoOportunity had the lowest individual premiums in three of the four rating areas (the exception being greater Omaha) and had the lowest premiums statewide in the off-exchange small group market.
In Iowa, where Wellmark has sat out the first two years of exchanges, CoOportunity competed only against Coventry, and set individual rates about "2 to 20 percent higher" and small group rates at about three to five percent lower, Gold said.
By May 2014, CoOportunity had the second largest membership of all the co-ops (after Health Republic of New York) with 50,000 individual members and 20,000 group members from 1,400 organizations, thanks in part to verdant deals with brokers. (One member is also a broker who was recently elected to CoOportunity's board of directors, only to step down over alleged coercion by Wellmark, the subject of a recent complaint with the insurance commissioner.)
At the end of 2014, CoOportunity had 113,000 members. Along with its premium revenue, the company had $14 million in start-up funds due for repayment within five years and $135 million in solvency loans due in 15 years. The financial target has been an operating margin of 1.7 percent that would be used to repay the loans and reduce future premiums.
According to the court filing, CoOportunity lost $45 million in the first 10 months of the year, and by December, had only $17 million left in reserves. An emergency plea to CMS for solvency funding was denied. The company had expected to receive $125 million in risk adjustment, risk corridors and reinsurance payments, but those payments have been delayed by CMS until sometime in 2015. Plus, the recent federal budget passed by Congress made changes that the company estimated will reduce what they were owed by $60 million.
Some of the high medical costs that have put the company on the brink of bankruptcy certainly came from high utilization among Medicaid beneficiaries in a demonstration program using subsidized exchange plans for individuals earning under 133 percent of the federal poverty level.
In October, CoOportunity Health pulled out of the program, saying that "As a nonprofit, member-governed new health plan, we cannot ask our 85,000 other members to pay higher rates to subsidize the 9,700 (Iowa Marketplace Choice) members."
The individuals who purchased subsidized exchange plans may also have been presenting high claims, especially in Iowa, where Gerhart allowed pre-ACA individual plans to continue beyond 2014. Gold estimated that as many as 200,000 Iowans, including many farmers, choose to stay in lower-premium pre-ACA individual policies, many of them issued and renewed by Wellmark, which plans to join the public exchange for 2016. For next year's plans, CoOportunity increased premiums in Nebraska by only a few percentage points, while raising them quite a bit more in Iowa, in some places by as much as 14 percent. "That's more than we would like, but it's largely driven by the non-compliant plans," Gold said.
The fate of CoOportunity Health and the rest of the co-ops could have significant implications for insurance markets and consumers in dozens of states and major metropolitan areas, from the West Coast to New England. Looking ahead in the spring of 2014, Gold said he thought some co-ops would go extinct, but that "the vast majority will make it."
(Photo via AnneCN.)