Featured Health Business Daily Story, Oct. 30, 2015

As More CO-OPs Crumble, Blues Plans Are There to Pick Up the Pieces…and Members

Reprinted from THE AIS REPORT ON BLUE CROSS AND BLUE SHIELD PLANS, a hard-hitting independent monthly newsletter on new products, market share, management strategies, profitability, strategic alliances and executive compensation of BC/BS plans. (Not affiliated with the Blue Cross and Blue Shield Association or its member companies.) Sign up for a $72 two-month trial subscription today.

By ,
November 2015Volume 14Issue 11

So far, eight of the 23 Community Operated and Oriented Plans (CO-OPs) created as part of the Affordable Care Act (ACA) have failed, leaving hundreds of thousands of people to search for a new health insurer when the open-enrollment period kicks off on Nov. 1. That could mean an enrollment bump for Blues plans, inside and outside of public exchanges, in states where the start-ups have buckled.

“This will help Blues plans [in those states] boost their enrollment since their trademark is well known and regarded…something particularly important just after your CO-OP went broke,” says industry consultant Robert Laszewski, president of Health Policy and Strategy Associates LLC.

“The experienced Blues executives were worried that these CO-OPs were going to take the government money and underprice the market. The evidence is now pretty strong that is exactly what they did.” The program awarded the not-for-profit insurers about $2.4 billion in federal loans.

On Oct. 16, Health Republic of Oregon (one of two CO-OPs in that state) and Colorado Health Cooperative separately announced that they would wind down operations and not offer coverage for 2016. Two days earlier, Tennessee’s Community Health Alliance Mutual Insurance Company made an identical announcement. And earlier that week, Kentucky Health Cooperative, Inc., which had been touted as one of the most successful CO-OPs, said it would cease operations at the end of the year.

400,000 Members Are Up for Grabs

As of March, the nation’s CO-OPs collectively had more than 1 million members. Seven of the soon-to-be-defunct CO-OPs have a combined enrollment of nearly 400,000 members. CoOportunity Health, Inc., the Iowa-based CO-OP liquidated early in 2015, had more than 50,000 members in Iowa and Nebraska (The AIS Report 1/15, p. 3).

As start-ups, most of the nation’s CO-OPs have been struggling financially despite sometimes large enrollment. Many were banking on the ACA’s risk-corridors program to offset some of their 2014 losses. On Oct. 1, however, the agency disclosed that it could pay carriers only 12 cents for every dollar they requested for the first year of the risk-corridor program. Based on 2014 data, health insurers will receive about $362 million in the first year of the three-year risk-corridor program. That’s only about one-eighth of the $2.87 billion that carriers requested. While CMS has said it will continue to reimburse carriers for their 2014 claims, CO-OPs and other small carriers might not be able to wait.

The three-year risk-corridor program was designed to shield carriers that wind up with a disproportionate share of costly enrollees. It had been expected that CMS would make up any shortfall if carriers paid less money into the program than they requested. But a catch-all budget bill passed by Congress and signed by President Obama last December requires the program to be budget-neutral. The temporary program is part of the so-called 3Rs — along with risk adjustment and reinsurance — outlined in the ACA.

“I think Blues plans will be happy to scoop up lives [from the CO-OPs], and they are experienced in dealing with the higher risk that might be associated with consumers who will need to transition from a CO-OP plan into another plan,” says Christopher Condeluci, a principal at CC Law & Policy in Washington, D.C. Condeluci worked for the Senate Finance Committee during the drafting of the ACA. Blues plans, he notes, are well capitalized to absorb any adverse risk that they take on. “In the long run, the Blues plans should be happy to take on these new lives and I think they’ll benefit from it.”

Many Lives Are Up for Grabs

In 2009, Sen. Kent Conrad (D-N.D.), a member of the Senate Finance Committee, floated the idea of creating a network of 50 nonprofit health insurance cooperatives, operated by their members, which would compete against private health plans. CO-OPs were seen as a more palatable, but far weaker, alternative to a government-run public insurance option, which Republican lawmakers strongly opposed.

Here’s a look at some of the CO-OPs that will leave the market, and the potential enrollment Blues plans might be able to win:

  • Colorado Health Insurance Cooperative: The state Division of Insurance on Oct. 16 said it took action against the CO-OP after learning the insurer would receive just $2 million of the $16.2 million it had requested from the risk-corridors program. The shortfall means it can’t meet the state’s minimum capital and surplus requirements. The carrier is expected to end the year with a $34 million loss. The CO-OP opposed the closure and, in a prepared statement, noted that “independent actuarial projections indicate the company would be profitable in 2016, while making significant contributions to capital reserves, and place it well on its way to paying back its federal start-up loans early.”

Number of members up for grabs: 79,877 individual policies and 2,908 covered by small-group plans.

  • Health Republic of Oregon: In a prepared statement Oct. 16, Dawn Bonder, the carrier’s president and CEO, said the shortfall in the risk-corridors program would result in a negative financial impact of more than $20 million.

Number of members up for grabs: Nearly 15,000 members including employees from more than 800 small businesses.

  • Community Health Alliance (CHA): The Tennessee-based CO-OP announced Oct. 14 that it would close its doors at the end of the year. In January, the Tennessee Dept. of Commerce & Insurance said enrollment had increased from just over 2,000 at the end of 2014 to more than 41,000 members as of March 31. The insurer had requested an average rate increase of 32.2% for 2016, but was approved to boost premiums by 44.7% by the state. BlueCross BlueShield of Tennessee requested and was granted an average 36.3% rate increase for individual products to be sold inside and outside of the state’s federally run exchange. The Tennessee Blues plan already has more than 70% of the market.

Number of members up for grabs: 27,000.

  • Kentucky Health Cooperative, Inc.: In 2014, the CO-OP’s losses tallied about $50 million, but those losses had receded to $4 million by the middle of 2015. The substantial shortfall of the risk-corridor program, however, means the CO-OP will be reimbursed $9.7 million — a fraction of the $77 million it had requested.

Number of members up for grabs: 51,000.

  • Health Republic of New York: On Sept. 25, the New York State Dept. of Financial Services, CMS and the New York State of Health exchange announced the CO-OP would close on Dec. 31. The New York City-based insurer was the nation’s largest CO-OP in terms of enrollment, but lost $77 million in 2014 and another $52 million during the first half of 2015, according to the state.

Number of members up for grabs: 195,000 split between individual and small-group plans.

  • Nevada Health CO-OP: The insurer announced its decision at the end of August blaming “challenging market conditions.” The CO-OP reported a $19.3 million operating loss in 2014, and losses of $22.7 million from January through June.

Number of members up for grabs: 21,000.

  • Louisiana Health Cooperative, Inc.: On July 24, the Louisiana CO-OP said it would cease operations at the end of the year. The company lost nearly $6 million last year due to higher-than-anticipated medical and pharmacy claims.

Number of members up for grabs: 16,000.

© 2015 by Atlantic Information Services, Inc. All Rights Reserved.

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