With nearly two dozen CO-OPs created under the Affordable Care Act continuing their financial struggles, attention is turning toward why they’re experiencing such difficulties and being eclipsed by other more promising marketplace developments.
Health Republic Insurance of New York’s recent announcement that it will stop selling policies and eventually cease operations brings to four the number of CO-OPs that haven’t been able to compete on the exchanges.
Others include Nevada Health CO-OP, Louisiana Health Cooperative and CoOportunity Health, which sold coverage in Iowa and Nebraska. State and federal regulators have ordered each of these entities to shut down after becoming financially insolvent.
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CO-OPs must stop under-pricing their risk if they have any hope of long-term viability, says Deep Banerjee, an insurance company analyst at Standard & Poor’s. He says this challenge is reflected in the fact that most of the profitable CO-OPs also report an underwriting level loss. Other necessary strategies will include reducing costs or increasing scale, as well as replenishing their own capital by generating profits in the face of lost federal funding.
While CO-OPs haven’t made much of a dent in their competition with legacy insurance companies that win hands down on brand recognition and reputation, Banerjee notes that they have gained membership. Still, he cautions that it won’t help unless they have enough money in the bank.
Rare success stories in the CO-OP space include industry leader Maine Community Health Options, which Banerjee says was profitable last year and through the first six months of 2015. He says other bright spots are the Community Health Alliance in Tennessee, which overcame a net loss in 2014 and temporary suspension of sales earlier in the year, and Common Ground Healthcare in Wisconsin.
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But the problem is that most CO-OPs don’t understand “the true costs of insurance,” nor do they have the necessary skill-set, customer-service expertise or innovative spirit needed to compete with traditional commercial health insurance carriers, says John Sarich, a seasoned insurance industry and VP of strategy at an insurance automation company called VUE Software. “The only thing they had to compete on was price,” he says.
Kelly Crowe, CEO of the National Alliance of State Health CO-OPs, recently issued a statement in defense of her group’s faltering members that noted “from practically their inception, health insurance CO-OPs have been hamstrung by both the structure of the program and the way in which the Affordable Care Act was implemented. Though it has become clear that initial capitalization levels for most CO-OPs were insufficient for the short term, regulatory obstacles have continued to make it virtually impossible for these CO-OPs to raise additional third-party capital to support growth.” Her group represents 23 CO-OPs that serve 26 states.
Rules governing the CO-OP structure, no doubt, impose some operational challenges, such as limited ability to raise capital, observes Leslie Moran, SVP of the New York Health Plan Association. Noting that the competitive impact of CO-OPs obviously will vary across each state and that it’s difficult to now speculate on the fate that might befall other CO-OPs, she describes New York as a robust market with 16 other plans offering products on the exchange and other plans selling their wares outside the exchange.
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The online marketplace is still very much in transition, according to Courtney Jay, a spokeswoman for America’s Health Insurance Plans. While unable to comment on the impact CO-OPs are having, she says health plans’ focus is on “affordability and value for consumers who are purchasing coverage in the individual market.”
Sarich believes CO-OP failures suggest they weren’t needed in the first place, particularly since the health insurance companies they competed against weren’t making “obscene profits.” CO-OPs didn’t offer anything new, he says, noting how “they tried to do it cheaper, and that’s what killed them.”
As for the failure of Health Republic Insurance of New York, Sarich says “if you can’t make it in a populated state like New York and get enough business, then what does that mean to relatively small-population states?”
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The inability of CO-OPs to innovate stands in stark contrast to the rise of private exchanges that are thriving in the employer-provided group market, according to Sarich. “The employer plans are doing just fine, and the market is working its way through basically the rules that have been promulgated,” he says.
