Two More ACA Insurance CO-OPs to Close

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By Sara Hansard

Oct. 16 — Two more Affordable Care Act CO-OPs announced their closure Oct. 16, bringing the total number of failures to eight of the 23 nonprofits created under the ACA's Consumer Operated and Oriented Plan program.

The 80,000-member Colorado Health Insurance Cooperative, known as Colorado HealthOP, announced the Colorado Division of Insurance will decertify it in 2016 from the ACA Connect for Health Colorado marketplace, where Colorado HealthOP covers 40 percent of the marketplace's members. Health Republic Insurance Co. in Oregon, which has 15,000 members, also announced it no longer will offer plans on that state's ACA exchange in 2016. Both CO-OPs said they would cover enrollees through 2015.

Both blamed the federal government's low payments under the ACA risk corridors program as a factor in their failure. The Department of Health and Human Services said Oct. 1 it is only paying $362 million of the $2.9 billion, or 12.6 percent, requested by insurers under the temporary program intended to protect issuers from losses.

Colorado Regulator's Statement

The Colorado Division of Insurance (DOI) said in its announcement that it took the action against Colorado HealthOP “in time to ensure that HealthOP members can enroll in new plans during the upcoming open enrollment without a disruption in coverage.”

Colorado Insurance Commissioner Marguerite Salazar told Bloomberg BNA in a telephone interview Oct. 16 that the regulatory agency had given Colorado HealthOP “a lot of time,” but “we did not feel that we could take any more time because of the disruption that it would cause to the marketplace.”

“The CO-OP was relying heavily on getting full payment from the risk corridor,” Salazar said. “When that didn't happen it really turned the company upside down.”

Problems With ACA Risk Programs

Two of the ACA premium stabilization programs, the permanent risk adjustment program and the temporary risk corridors program, have hit CO-OPs and other small, new plans particularly hard. The programs are intended to compensate health plans that insure sicker-than-average enrollees, but the new plans say they are at a disadvantage because they don't have claims histories needed to verify their enrollees' health status as established health plans have.

Colorado HealthOP Chief Executive Officer Julia Hutchins told Bloomberg BNA in a telephone interview Oct. 16 that the HHS's Oct. 1 risk corridors payment announcement meant “We went from having twice the regulatory capital requirements in our state in one day to taking a big blow the next day after that announcement.”

$72 Million in Federal Loans to Be Lost

Colorado HealthOP won't be able to repay the $72 million in federal loans it received under the ACA, which is “now a taxpayer loss,” Hutchins said. In addition, the state will have to spend another $40 million winding the CO-OP down, she said.

Colorado HealthOP had private investments of $30 million to $70 million lined up, Hutchins said. “But the Division [of Insurance] felt it had to make a premature decision because of open enrollment around the corner. It was really unfortunate.”

Colorado HealthOP had to pay the federal government $4.6 million in risk adjustment payments for 2014, Hutchins said. The high risk adjustment payment the CO-OP had to pay was “not necessarily reflective of the underlying risk of our population,” Hutchins said.

Colorado HealthOP received $19 million under a third ACA premium stabilization program, the temporary reinsurance program, which compensates insurers for high claims, she said. That was an indication that the health plan was covering people with high health-care needs, she said. “It doesn't match up with what's happening for risk adjustment.”

Low Payment `Lethal Blow' for Oregon CO-OP

Dawn Bonder, CEO of Health Republic Insurance Co., told Bloomberg BNA in a telephone interview Oct. 16 that the low risk corridor payment “was the lethal blow” to its viability. The Centers for Medicare & Medicaid Services has said it would attempt to make up shortfalls from the risk corridors program in later years, but “I'm not going to get that check in time to use it for cash flow,” she said.

Health Republic received about $60 million in federal ACA loans, Bonder said, adding she isn't sure “how much of those we will be able to pay back.”

“We're just collateral damage of a broken political system,” Bonder said. Appropriations legislation enacted in 2014 includes a Republican-backed provision barring the HHS from funding the risk corridors program from outside sources.

“HHS says it has the funds but it's being prevented from utilizing those funds for the risk corridors” as a result of the budget law, Bonder said. “We got stuck with this issue because of political showmanship.”

CO-OPs in Kentucky and Tennessee also have announced their closure over the past week, citing the shortfall in risk corridor payments as a major factor.

On Oct. 16 the National Alliance of State Health CO-OPs issued a statement saying, “The dissolution of three CO-OPs this week is a devastating blow to Americans who seek competition, choice, innovative benefits, and non-profit alternatives when selecting a health insurer. It is no coincidence these announcements come on the heels of the recent notice by CMS that only 12.6% of the 2014 risk corridor will be paid to insurers. Many of the CO-OPs now closing were well on their way to longer term financial sustainability, but few businesses can sustain hits like the CO-OPs and other small and new insurance companies have endured from unexpected risk adjustment obligations and much lower-than-promised risk corridor payments.”

To contact the reporter on this story: Sara Hansard in Washington at shansard@bna.com

To contact the editor responsible for this story: Janey Cohen at jcohen@bna.com