Will any of the new federally-backed cooperative insurers survive? To pro-business advocates skeptical of the Affordable Care Act in general, they are doomed and should be.
From the Midwest came end-of-year news that CoOportunity Health, a cooperative insurer selling in Iowa and Nebraska, is being taken into state rehabilitation. Iowa's insurance commissioner, Nick Gerhart, said he will try to right the nonprofit insurer, but said liquidation is a clear possibility and advised some 120,000 policyholders to shop elsewhere.
For health reform advocates, particularly those who wanted some type of publicly-financed health plan back in 2009, the consumer-oriented and-operated plans created with federal loans under the ACA were something to cheer.
Not so at the Wall Street Journal editorial board, which called the co-ops a looming "Fannie Med" back in 2012 and now sees CoOportunity Health's possible (or probable) demise as predictable.
"Call it the Solyndra of ObamaCare," the paper's editorial board wrote:
CoOportunity was among the insurance co-ops financed by the Affordable Care Act, much like credit unions or the rural electricity and feed-and-seed collectives of the Depression era. To placate progressives angered by the lack of a government-run "public option," the law converted HHS into a venture capital investor, and the bureaucracy pumped $1.9 billion into two dozen outfits that now cover about 450,000 Americans.
The co-ops were supposed to compete with normal private insurance, but as it happens the amateurs who run them can't attract private financing. Perhaps the lack of accountability to shareholders and capital markets explains why they are starting to fail, though their complete dependence on government subsidies introduced other distortions.
The WSJ board argued that the co-ops tended to "deliberately underprice their policies," pointing to a McKinsey study that found co-ops offering about 30 percent of all the lowest-cost plans on the exchanges.
For co-ops, the "rational calculation is to game ObamaCare's rules to undercut competitors and capture market share. If premiums don't cover claims, the deficit can be absorbed by ObamaCare's reinsurance and risk corridor and adjustment programs that are supposed to provide a safety net against major insurer losses," the WSJ board wrote. "Normal insurers have been complaining about 'irrational' co-op rates and even withdrawing from markets where such artificially cheap plans are sold."
Whether or not undercutting dominant insurers was part of CoOportunity's strategy, the company's premiums were not the lowest across Iowa and Nebraska. They weren't irrational, but were competitive, in states where separate Blues controlled well over half the market, Cliff Gold, the company's CEO and a former Wellmark Blue Cross executive, told Healthcare Payer News in early 2014.
In Nebraska, selling alongside Aetna's Coventry and Blue Cross and Blue Shield, CoOportunity had the lowest individual premiums the state's three rural-suburban rating areas, but not in the largest rating area, greater Omaha, however, it did have the lowest-cost small group plans statewide. In Iowa, selling only against Coventry, CoOportunity set individual rates about "2 to 20 percent higher" and small group rates at about three to five percent lower, Gold said.
No doubt the co-op had a lot of healthcare utilization; its reserves fell from around $75 million in January to $17 million in December. Insuring large swaths of a new population of individual members for the first time was a gamble too, particularly in Iowa, where at least some of the healthiest individually-insured residents choose to renew their pre-ACA policies with Wellmark, including many Iowa farmers.
But that was supposed to be offset in part by the ACA's risk stabilization programs, and it turned out relying on that is risk in itself. CoOportunity expected to receive $125 million in risk adjustment, risk corridors and reinsurance payments. Those payments have been delayed by CMS until sometime in 2015, and the recent federal budget passed by Congress made changes that could reduce what they were owed by $60 million.
CoOportunity's future is unknown, but bankruptcy is a distinct possibility. Is that the case for the rest of the 23 cooperative insurers?
"The sudden detonation of a taxpayer-backed insurer in Iowa and Nebraska is an early warning," the WSJ editorial board argued. "There will be more such failures in the years ahead."
Only time will tell. Cliff Gold, who has not yet commented on the news of Iowa's state rehabilitation action, predicted in the spring of 2014 that "the vast majority" of co-ops "will make it."
Martin Hickey, MD, CEO New Mexico Health Connections, and chairman of National Alliance of State Health CO-OPs believes as much too.
"The news about CoOportunity Health is not a statement on the health insurance CO-OP program or the CO-OP concept," Hickey said. "It's a reflection of the fact that all insurers, not just CO-OPs, are operating in unique markets with unique business plans and varying state regulations."