News & Commentary

Then There Were 7 Co-Ops


We’ll tell you when we’re wrong, and when we’re right, we’ll lead with it. Our story last December about the struggles of ACA insurance co-ops ended on an ominous (though somewhat noncommittal) note: “For the surviving 11 co-ops, 2017 might seem light years away.” In other words, will all of them still be around?

Well, guess what Kaiser Health News reported recently?

When the ACA’s fourth enrollment season opens in a couple of months, there will be just seven co-ops remaining, thanks to four new co-op closures in Oregon, Ohio, Connecticut, and Illinois.

Co-ops are consumer-owned and operated health plans and were meant to be a relatively inexpensive alternative to commercial insurance under the ACA. But after a rough birth came a dysfunctional infancy, and toddlerhood doesn’t look like it will be any picnic either.

Surprise! Funding is the issue. Risk corridors were set up for co-ops, under which health plans that lose money are supposed to be able to recoup some of their losses—up to 80% in some cases—by tapping into funds from health plans that have done well on the ACA exchanges.

But risk corridor contributions of $362 million in 2014 fell far short of the $2.5 billion co-ops requested to keep their operations viable. As a result, 12 of the 23 co-ops that sold policies for 2015 shut down weeks before the November 1 start date for open enrollment for the 2016 ACA plans.

Risk adjustment is also not working. It requires that insurance companies with lower risk populations pay charges to offset plans with higher risk populations. But the National Alliance of State Health Co-Ops (NASHCO) pointed out in early July that risk adjustment meant that the remaining co-ops owed the government $150 million in payments.

NASHCO CEO Kelly Crowe said in a statement that the system punishes co-ops “while rewarding many large and established health insurers.”

Not surprisingly, co-op enrollment numbers are also on the skids. A year ago, about 1 million Americans were insured through co-ops, according to NASHCO. The seven remaining co-ops have about 350,000 members.

Their fight for survival forces them to innovate. “Some are diversifying to serve larger employers, no longer limiting themselves to their ACA mandate to offer health plans to individuals and small businesses,” Kaiser reported. “A Maryland co-op has sued the federal government to avoid paying millions of dollars to other insurers under the ACA’s complex formula to keep premiums stable by balancing risks among insurers and helping ailing ones. Other co-ops are trying to renegotiate contracts with hospitals and other providers.”

CMS is considering some fixes, including getting Congress to enact legislation that would allow Medicare trust fund money to shore up co-op funding, and allowing a more market-based approach that would remove regulatory hurdles so co-ops could raise capital on their own. Some co-ops, as mentioned above, aren’t waiting for an OK.

NASHCO’s message, meanwhile, is: Faster, please. “CMS has pledged to take a closer look at the program to ensure its effectiveness,” Crowe said. “We continue to encourage the agency to listen to our concerns and act expediently to fix the very real flaws in the risk adjustment program.”