Many ACA in­sur­ance co-ops strug­gling

Fed­eral reg­u­la­tors have warned nearly half of plans to shape up

The Washington Post Sunday - - POLITICS & THE NATION - BY AMY GOLD­STEIN amy.gold­stein@wash­post.com

A new breed of health in­sur­ers cre­ated un­der the Af­ford­able Care Act— rep­re­sent­ing one of the gov­ern­ment’s most in­no­va­tive at­tempts in decades to foster bet­ter cov­er­age — is on shaky fi­nan­cial ground in many of the 23 states where the plans be­gan.

The non­profit health plans were en­vi­sioned as a con­sumer­friendly coun­ter­weight to for­profit in­sur­ers, a way to pro­vide more com­pe­ti­tion, greater con­sumer choice and bet­ter cov­er­age in mar­kets typ­i­cally dom­i­nated by big com­mer­cial car­ri­ers. The gov­ern­ment al­lo­cated bil­lions of dol­lars in loans for them.

But in re­cent months, nearly half of the un­ortho­dox start-ups have been told by fed­eral reg­u­la­tors that their fi­nances, en­roll­ment or busi­ness model need to shape up.

The Cen­ters for Medi­care and Med­i­caid Ser­vices (CMS), which over­sees the health-care law, re­cently sent warn­ing letters to 11 of the “co-ops,” as they’re­known. The agency placed them on “en­hanced over­sight” or re­quired them to pro­duce a plan of “cor­rec­tive ac­tion,” or both, ac­cord­ing to fed­eral fig­ures not pre­vi­ously made public. Sev­eral have been no­ti­fied in the past two weeks.

Amid this in­creased mon­i­tor­ing, one co-op has folded, strand­ing its mem­bers, and four oth­ers are pre­par­ing to close in late De­cem­ber. They in­clude the Ne­vada Health Co-Op, which was ini­tially among a top tier that fed­eral of­fi­cials had re­garded as best poised to suc­ceed.

CMS sent it a warn­ing July 30. The four-page let­ter listed the plan’s short­com­ings, pointed out the gov­ern­ment’ s power to re­scind $65.9 mil­lion in loans it had pro­vided early on and asked what the co-op was go­ing to do about its prob­lems.

Twenty-seven days later, the board of di­rec­tors gave an an­swer: It was go­ing out of busi­ness.

The birth and quick death of these co-ops il­lus­trate the pro­gram’s fragility. When the ACA was en­acted in 2010, the Con­sumer Op­er­ated and Ori­ented Plans were a com­pro­mise to ap­pease con­gres­sional lib­er­als who had wanted a new public in­sur­ance pro­gram for Amer­i­cans un­able to get health ben­e­fits at work.

Yet the co-ops’ strug­gle of late also re­flects reg­u­la­tors’ shift­ing pos­ture. In­movesthat could af­fect cov­er­age for hun­dreds of thou­sands of peo­ple, CMS has gone from nur­tur­ing to get­ting tough.

The agency says the scru­tiny is needed to help prop up fal­ter­ing plans or, if that is not pos­si­ble, to avoid abrupt shut­downs that would force con­sumers to buy new cov­er­age mid-year.

Oth­ers dis­agree. “It’s kind of like the ACA is eat­ing its young,” said Martin Hickey, chief ex­ec­u­tive of New Mexico’s co-op and board chair­man of the co-ops’ na­tional as­so­ci­a­tion. Hickey and other plans’ lead­ers, as well as some health pol­icy ex­perts, con­tendthat the in­creased vig­i­lance is largely what one called “an op­ti­cal re­sponse,” a strat­egy to buf­fer the Obama ad­min­is­tra­tion from fresh crit­i­cism by Repub­li­cans, who have spent the past five years at­tack­ing the law.

The pre­car­i­ous­ness of many coops — and the gov­ern­ment’s re­sponse — is draw­ing at­ten­tion as doubts about other parts of the law­sub­side. In June, the Supreme Court is­sued the sec­ond of two ma­jor rul­ings since 2012 that up­held core el­e­ments of the statute. And af­ter a dis­as­trous start two years ago be­cause of a tech­no­log­i­cal de­ba­cle, the ACA’s fed­eral and state-run ex­changes have be­come con­duits to in­sur­ance for nearly 10 mil­lion peo­ple.

The co-ops, how­ever, area­mong less prom­i­nent as­pects of the law with less cer­tain fates.

The first plan to col­lapse served peo­ple in Iowa and Ne­braska; it folded in Fe­bru­ary af­ter be­ing taken over by state in­sur­ance reg­u­la­tors. In July, Louisiana’s co-op re­vealed it was shut­ting down. Then late last month in New York state, the na­tion’s largest co-op top­pled, star­tling in­sur­ance in­dus­try and health pol­icy an­a­lysts who thought it was too big for the gov­ern­ment to let fail.

The latest an­nounce­ment came Fri­day, when the Ken­tuck­yHealth Co­op­er­a­tive, serv­ing about 51,000 cus­tomers, said that it, too, will close Dec. 31 be­cause of poor fi­nances. “In plainest lan­guage, things have come up short of where they need to be,” the co-op’s leader said.

Fed­eral health of­fi­cials— usu­ally loath to fore­shadow bad news— have said more clo­sure an­nounce­ments may come be­fore the Nov. 1 start of the third open-en­roll­ment sea­son for Amer­i­cans to buy cov­er­age through ACA in­sur­ance ex­changes.

The co-op dis­ap­pear­ances are dis­rupt­ing cov­er­age for nearly 400,000 cus­tomers across five states, ac­cord­ing to the most re­cent pub­licly avail­able en­roll­ment fig­ures. But the rip­ple ef­fects could be broader. Re­search has sug­gested that in the states in which they were cre­ated, in­sur­ance premi­ums were typ­i­cally 9 per­cent lower than else­where in the coun­try.

As co-ops shut down, their sup­port­ers say, the de­creased com­pe­ti­tion prob­a­bly will lead to higher rates in those states.

The pro­gram has been un­der siege from the start, in­clud­ing from the in­sur­ance in­dus­try. Be­fore the law’s pas­sage, gov­ern­ment grants to help them get go­ing were switched to loans. None of that money could go for advertising — a wound­ing rule for new in­sur­ers that needed to at­tract cus­tomers. More­over, the amount avail­able was cut from $10 bil­lion to $6 bil­lion and then later, as part of the ad­min­is­tra­tion’s bud­get deals with con­gres­sional Repub­li­cans, to $2.4 bil­lion. Fed­eral health of­fi­cials aban­doned plans for a co-op in ev­ery state.

At the time, some health pol­icy ex­perts warned that the con­straints would­make it dif­fi­cult for some co-ops to thrive. Most of the plans pre­dicted that they would not break even for their first few years.

The re­cent gy­ra­tions are those fore­casts com­ing true. By June 30, all but one co-op had en­rolled more peo­ple than at the end of 2014, ac­cord­ing to dataon­file with the Na­tional As­so­ci­a­tion of In­sur­ance Com­mis­sion­ers. All but three con­tin­ued to run fi­nan­cial losses, though. Some of the net losses were smaller than six months ear­lier, but for five co-ops they were worse. Nine had eroded cap­i­tal.

The stresses have been mag­ni­fied, Stan­dard & Poor’s an­a­lyst Deep Ban­er­jee and other ex­perts say, by re­cent twists and turns in the way the health-care law is be­ing car­ried out. These in­clude an ACA “risk ad­just­ment” pro­gram in­tended to bal­ance out the fi­nances of in­sur­ers in the ex­changes that have sicker cus­tomers and those with health­ier mem­bers. Its first year ended with 17 co-ops ow­ing pay­ments to other in­sur­ers.

In Au­gust, fed­eral of­fi­cials de­layed another type of as­sis­tance in­tended to help cush­ion the risk of cov­er­ing the pre­vi­ously unin­sured. This tem­po­rary “risk cor­ri­dor” money was cut last week to a small frac­tion ofwhat­manyco-ops had been bank­ing on. The Ken­tucky co-op blamed its demise on its cut— from an ex­pected $77 mil­lion to less than $10 mil­lion.

The ex­pe­ri­ence of the on­ce­promis­ing Ne­vada Health Co-Op, which is in court-ap­proved re­ceiver­ship, demon­strates the grow­ing pains of try­ing to break into the in­sur­ance mar­ket in the ACA era. An out­growth of a large Culi­nary Union health plan for Las Ve­gas ho­tel and res­tau­rant work­ers, the co-op was able to open with an ex­ist­ing sta­ble of doc­tors, a builtin data sys­tem and ex­per­tise in man­ag­ing care. The state’s high unin­sured rate meant lots of peo­ple needed to get cov­er­age.

Some in­sur­ance bro­kers were wary. “Why would I want to put my life into the hands of a rookie?” said Pa­trick Casale, who sells health in­sur­ance in Las Ve­gas.

Oth­ers pro­moted the co-op’s gen­er­ally lower rates, health ad­vo­cates and greater free­dom for mem­bers to see pre­ferred doc­tors. “That per­sonal touch, rather than, ‘Here’s a 1-800 num­ber,’ ” said Al­berto Ochoa, who en­rolled nearly 400 clients in the plan.

Even so, in part be­cause of the plan’ s own com­puter trou­bles, just half of the nearly 34,000 mem­bers ex­pected were signed up dur­ing the first year. And by this past win­ter, state reg­u­la­tors be­gan wor­ry­ing about its fi­nances, ac­cord­ing to a source fa­mil­iar with the state’s in­sur­ance in­dus­try. A se­nior fed­eral of­fi­cial close to the pro­gram said that CMS asked the co-op for more fi­nan­cial data in May and paid a visit in June, fol­lowed by its July 30 let­ter.

That no­tice and the de­layed risk-cor­ri­dor pay­ment “pushed the board to make some real hard de­ci­sions,” said an of­fi­cial highly fa­mil­iar with the co-op who spoke on the con­di­tion of anonymity to dis­cuss its in­ter­nal de­lib­er­a­tions. “The co-op was able to over­come hur­dle af­ter hur­dle but could not see what the fu­ture held with CMS.”

Rude­lene Rachiele, a 63-yearold breast can­cer sur­vivor in Hen­der­son, Nev., wor­ries about the con­se­quences. She found the coop easy to deal with when she needed to have her breast im­plants re­placed and won­ders whether another in­surer will be as ac­com­mo­dat­ing.

“I’m not happy,” Rachiele said. “I just don’ t want togo through the has­sle.”

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