Md. health co-op to be con­verted to for-profit

Ever­green move seen as blow to U.S. re­form act

Baltimore Sun - - FRONT PAGE - By Sarah Gantz

Ever­green Health, once con­sid­ered among the most suc­cess­ful of the health in­surance co-ops formed un­der the fed­eral Af­ford­able Care Act, will be ac­quired by a con­sor­tium of pri­vate in­vestors and con­verted to a for-profit in­surance com­pany, its CEO, Dr. Peter Beilen­son, said Mon­day.

The deal would al­low the Bal­ti­more non­profit to re­main in busi­ness but is an­other blow to a key pro­vi­sion of the fed­eral health re­form law, which es­tab­lished such con­sumer-ori­ented and -op­er­ated health plans, or co-ops, as a way to im­prove com­pe­ti­tion in the in­surance mar­ket­place and help stem ris­ing prices.

Only six of the 23 co-ops launched na­tion­wide re­main, in­clud­ing Ever­green, which in­sures 38,000 peo­ple in Mary­land. The rest closed or are in the process of wind­ing down, un­able to at­tract enough mem­bers, draw enough pre­mium rev­enue and with­stand the weight of new and costly reg­u­la­tory hur­dles cre­ated un­der the health re­form law.

“It re­ally was en­vi­sioned that the plans would be non­prof­its that would plow any Beilen­son

prof­its back into the ben­e­fits, so that ul­ti­mately the ben­e­fi­ciary of their suc­cess would be the con­sumer,” said Sab­rina Cor­lette, a se­nior re­search pro­fes­sor at the Cen­ter on Health In­surance Re­forms at Ge­orge­town Univer­sity’s Health Pol­icy In­sti­tute. “By con­vert­ing to a for-profit, while it may be es­sen­tial to Ever­green’s sur­vival, now the reapers of any suc­cess will be in­vestors, not the mem­bers — that’s un­for­tu­nate.”

Any ac­qui­si­tion must be ap­proved by the Mary­land In­surance Ad­min­is­tra­tion and the fed­eral Cen­ters for Medi­care and Med­i­caid Ser­vices, which loaned Ever­green $65 mil­lion seed money and ini­tially pro­hib­ited such con­ver­sions by the co-ops.

Ever­green de­clined to dis­close the iden­ti­ties of the in­vestors or the fi­nan­cial terms. If ap­proved, the deal could close in the first quar­ter of next year.

One of the few co-ops to re­port a profit, Ever­green was crip­pled by new in­surance rules that re­quired it to make a “risk-ad­just­ment pay­ment” that amounted to $24 mil­lion for 2015 — more than a quar­ter of its $85 mil­lion in rev­enue. Beilen­son blamed the pay­ment pro­gram for Ever­green’s in­abil­ity to re­main an in­de­pen­dent non­profit.

“It’s not that we’re a fail­ure — we did what we could to survive,” Beilen­son said. “It’s that this risk-ad­just­ment ba­si­cally forced our hand.”

The risk-ad­just­ment pro­gram, which aims to level the play­ing field for in­sur­ers tak­ing on riskier cus­tomers un­der the health re­form law, re­quires those with the health­i­est mem­bers to make pay­ments to those with the sick­est mem­bers. The pay­ment is based on the over­all health of each in­sur­ers’ mem­bers, com­pared to each state’s aver­age.

In Mary­land, most of the pay­ments went to CareFirst BlueCross BlueShield, the state’s largest in­surer.

Ever­green sued the fed­eral govern­ment in June over the rule, say­ing the risk ad­just­ment pro­gram fa­vors older, more es­tab­lished com­pa­nies and puts small firms at a dis­ad­van­tage.

Beilen­son said he is dis­ap­pointed to lose the or­ga­ni­za­tion’s non­profit sta­tus, but he thinks the change to a for-profit com­pany will ben­e­fit the in­surer’s mem­bers.

“It’s a lit­tle bit of a bit­ter­sweet mo­ment be­cause forces out­side our con­trol have forced us to make this move,” Beilen­son said.

Bring­ing in a group of pri­vate in­vestors will im­prove Ever­green’s fi­nan­cial sta­bil­ity, mak­ing it pos­si­ble to in­vest in new pro­grams aimed at im­prov­ing health and growing mem­ber­ship. Stronger fi­nan­cial back­ing also will mean Ever­green can in­vest in more so­phis­ti­cated tech­nol­ogy that could help re­duce fu­ture risk-ad­just­ment pay­ments, by pick­ing up on sub­tle signs of ill­ness among mem­bers, Beilen­son said.

The com­pany’s name will re­main Ever­green Health and Beilen­son said he does not ex­pect the deal to change Ever­green’s daily op­er­a­tions — or mem­bers’ ex­pe­ri­ence.

Dr. Martin Hickey, board chair of the Na­tional Al­liance of State Health Co-ops, ap­plauded Ever­green for find­ing a way to main­tain op­er­a­tions, as many of its peers sim­ply shut down.

“Ever­green Health has forged a cre­ative and in­no­va­tive path for­ward that en­sures Mary­lan­ders will still have ac­cess to the low­est-cost in­di­vid­ual plan on the state mar­ket­place in 2017,” Hickey said in a state­ment. “Ever­green’s agree­ment also pre­serves needed com­pe­ti­tion on the mar­ket­place, and pro­tects some of the ini­tial in­vest­ment tax­pay­ers made when co-ops were seeded with low-in­ter­est loans. This so­lu­tion puts Ever­green in a strong po­si­tion for fu­ture suc­cess.”

Cor­lette agreed that Ever­green’s pivot pro­tects mem­bers who would other­wise need to find an­other health plan — a dif­fi­cult process that other states have strug­gled to man­age, she said. “Look, out of 23 co-ops, there are six re­main­ing — so is it bet­ter to not only have noth­ing but have what has been in many states a very chal­leng­ing tran­si­tion for en­rollees, or is it bet­ter to main­tain the in­tegrity of that non­profit sta­tus?” she said. “I guess I would prob­a­bly ar­gue to have an al­ter­na­tive in the mar­ket.”

On the other had, she said, “when you shift to a for-profit sta­tus, it changes your mission, it changes your out­look, it changes how you service en­rollees.”

As part of the re­view of the deal by the Cen­ters for Medi­care and Med­i­caid Ser­vices, Ever­green and its in­vestors will ne­go­ti­ate re­pay­ing part or all of the $65 mil­lion startup loan, Beilen­son said.

The orig­i­nal terms of the loans pro­hib­ited co-ops from con­vert­ing to for-profit com­pa­nies or being ac­quired by a for-profit op­er­a­tion, but as more co-ops shut down, the agency changed its rules in May.

“The reapers of any suc­cess will be in­vestors, not the mem­bers.”

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