Fate of ObamaCare Co-ops Uncertain After Half Collapse- Is there a Possible Solution?


Brooke Singman wrote recently that “The fate of a network of alternative “co-op” health plans started under ObamaCare remains uncertain going into 2016, after half of them collapsed amid deep financial problems. Also “The Week” article by Megan McArdle reported more ominous signs pointing out what I described last week with United Health announced that they were facing loses worth up to $500 million on its 2015 and 2016 exchange policies, and that they might have to pull out oof Obamacare entirely after 2016.

The co-ops are government-backed, nonprofit health insurers propped up with over $2 billion in taxpayer loans. Twelve of the 23 co-ops established under the Affordable Care Act, though, have gone or are expected to go under by the end of the year, leaving customers who used them scrambling for coverage and taxpayer money at risk.

But, as lawmakers on Capitol Hill demand answers on what’s being done, the Obama administration is offering few predictions on the program’s future other than to say no more money will go toward new co-ops. As to whether that future will crystallize next year, a top federal health official said: “It’s impossible to say right now.”

Kevin Counihan, insurance marketplace CEO at the Centers for Medicare and Medicaid Services, described the co-op failures and other changes as simply “inevitable” in the health care industry.

“Things change,” Counihan told Fox News. “There is a natural ebb and flow to this business. You see this in start-ups in all industries, and it’s also true in health care.”

The answer may not satisfy lawmakers worried about the unrest caused by the co-op failures, and the taxpayer money at stake. But as for what comes next, analysts suggest it could take another year before anyone knows whether the remaining co-ops can survive or not.

“This was a fairly risky exercise to begin with,” Ed Haislmaier, senior research fellow in health policy at the Heritage Foundation, told Fox News.

According to Haislmaier, it is possible other co-ops fail in the near term, but he doesn’t expect more announcements before next fall – since state regulators already moved against the weakest co-ops before the current enrollment season, giving consumers a chance to pick a new plan.

“State regulators have gone through a process, to review and shut down co-op programs that were too weak to continue for another year,” he said. “… It explains why you saw a big bunch of them announce they were closing in October – because it was the drop dead [date]. If you’re going to pull the plug, October was the time to do it.”

The most immediate question may be whether the loan money – which was for start-up and reserve funds – will be repaid.

Tarren Bragdon, CEO of the Foundation for Government Accountability, said he doesn’t have high hopes for that. And he voiced concerns about consumers left seeking coverage on the exchanges.

“As the dust settles, we see the people who are being hurt the most are those whose health care was being provided by these artificially affordable plans,” Bragdon told Fox News. “Now, they will have to face the nightmare of HealthCare.gov or one of the crumbling state exchanges for a new plan for which premiums are averaging double-digit increases.”

Counihan, though, said they’re working to make sure consumers do not see a “coverage gap.”

“It is our primary importance that consumers are protected, consumers are given options, and consumers do not have a gap in coverage. That’s why you see these co-ops winding down in the fourth quarter – so the American people have coverage until the end of the year and new coverage starting on January 1st,” he said.

According to CMS, nine of the closing co-ops will be operating under the federal HealthCare.gov, and the agency plans to help those consumers to “shop and compare” plans.

“It’s not like people don’t have the choice to shop and compare for the best deal,” he said.

But other states with closing co-ops — like New York, Kentucky and Colorado — all operate on their own state-based exchange, which would likely absorb the co-ops’ ex-customers.

In Colorado, for example, Connect for Health Colorado opened in October of 2013 as the state exchange and will now take the co-op customers. “We have a lot of options for them,” Luke Clarke, spokesman at Connect for Health Colorado, told Fox News, referring to the roughly 80,000 consumers who will need to shop for new insurance after the-co-op flop.

“We are proud to work with these people who need to shop for new coverage, and roughly half of the consumers are already existing customers of ours,” Clarke said.

Both Counihan and Haislmaier – though on opposing sides of the issue – agree that the creation of future co-ops does not appear in the cards.

“There isn’t any money left in the program to create new co-ops, but the co-ops that are succeeding will have expansion opportunities,” Counihan said. “These are businesses that are responding to the unique pressures of their respective markets.”

According to CMS, the co-ops were implemented to add more “choice and competition” for consumers. But while ObamaCare supporters blamed Congress for the failures to date, Haislmaier says the co-ops are at fault.

“I would place most of the blame on the management of the companies because they were counting on money that was uncertain to begin with,” Haislmaier said, referring to faulty enrollment estimates. “The companies that counted their chickens before they hatched got into trouble; the ones that did not, didn’t get into trouble.”

Trying to be non-biased in my search for a sustainable health care system, I questioned-Are all co-ops in trouble and can we learn from the ones fairing well?

Heather Caspi in her October article reviewed the Evergreen Health Cooperative experience in Maryland. With 10 of 23 health cooperatives down around the U.S., Evergreen Health Cooperative in Maryland is among those 13 that have escaped failure thus far.

CEO Peter Beilenson says he won’t be surprised if a few more failures are announced before the Nov. 1 start of open enrollment. Utah announced its closure yesterday. The fast-approaching date to make a decision on whether to operate in 2016 has been the reason for the recent pileup, he says.

Those that do make it into open enrollment will have undergone a significant amount of scrutiny and will be unlikely to fail next year, he says.

What went wrong for so many?

“If you look at the [ten] that have gone out of business, the majority of them were the high enrollers in the first year,” Beilenson says.

He says they typically got the vast majority of their enrollment on the exchanges from individuals, who were high cost users. They priced aggressively and got the market share they wanted, but didn’t have the reserves of the big companies.

“They were depending on the three Rs – reinsurance, risk corridors and risk adjustment,” Beilenson says.

As far as risk adjustment, the assumption was if a large percentage of an insurer’s population was sick, they would be a receivable rather than a payable, but that turned out not to be true. Instead of receiving risk adjustment, 20 of the 22 co-ops operating at the time actually had payables, Beilenson says, making risk adjustment an unforeseen hit.

“They were then depending on the risk corridor to make them relatively whole,” he says, “but because the feds didn’t anticipate there would be vastly more requests for risk corridor than paying in, they only paid one eighth the amount they promised.”

He notes Colorado as an exception, where the co-op’s closure appears to have involved state political issues, but says most of those that folded did so for the above reasons.

“If you were counting on the federal government to come through with the three Rs, then what they did makes sense,” Beilenson says.

While that was a big assumption, Beilenson suggests CMS was partly responsible. “I do think CMS effectively misled the insurers across the board,” he says. While CMS had communicated they wouldn’t be paying 100% of the risk corridor funding, “They never implied they would be paying down around 10 cents on the dollar,” he says.

How Evergreen steered clear of collapse

“We diversified,” Beilenson says.

In addition, there was some serendipity in that the individual exchange in Maryland crashed at the beginning, limiting early enrollment, and Evergreen did not have the lowest prices.

“We purposely did not aggressively price, we appropriately priced,” Beilenson says, adding the co-op took some flak for not trying to get a better share of the market. As a result, they got very few people on the individual exchange and CareFirst, the Blues in Maryland, got 94.5% of the market.

Evergreen chose to be nimble and went to the small group market, so by the end of the first year they had enrolled 12,000 people – 11,500 of whom were in the small group.

This year they have been growing an average rate of a few thousand per month and have 26,000 now, and expect to be at 30,000 by the end of the year, Beilenson says. They are selling to the large group now, as well.

“I would argue that we appropriately priced on the individual exchange each year, including this year when we got 4,500 members on the individual side, and we diversified our book of business to small group and now large group, which is going to be at least as profitable,” Beilenson says.

He says the risk corridor and risk adjustment issues affected them by about one to two million dollars, as opposed to the tens of millions some others faced.

Beilenson adds the co-op has a very low MLR and has been breaking even the last couple of months. MLR or Medical Loss ratio is a basic financial measurement used in the Affordable Care Act to encourage health plans to provide value to enrollees. If an insurer uses 80 cents out of every premium dollar to pay its customers’ medical claims and activities that improve the quality of care, the company has a medical loss ratio of 80%. Therefore it is the proportion of premium revenues spent on clinical services and quality improvement

“We don’t have any kind of a cash problem at all. We’re at 700% RBC, the solvency measure. RBC is a method of measuring the minimum amount of capital appropriate for a reporting entity to support its overall business operations in consideration of its size and risk profile.” RBC limits the amount of risk a company can take. It requires a company with a higher amount of risk to hold a higher amount of capital. Capital provides a cushion to a company against insolvency. RBC is intended to be a minimum regulatory capital standard and not necessarily the full amount of capital that an insurer would want to hold to meet its safety and competitive objectives. Evergreen’s RBC is well above what the feds require and way above what the states require, and they have $55 million in assets and a very favorable population,” he says. “We actually have some of our solvency money yet to be drawn down which is not the case with almost any of the other co-ops.”

Beilenson notes that part of their success is also due to support from the state insurance department, which he adds comes from a Republican administration.

“Since the state are the true regulators of any particular insurance company, having their support has made a huge difference, and gives us a lot of stability and ability to face off with CMS,” Beilenson says.

Beilenson suggests all the co-ops that make it into open enrollment for 2016 will have strong financials. “With states getting skittish and feds covering themselves, I don’t think they would allow a nonviable co-op to go forward because it would be terrible publicity,” he says.

He says he’s confident about the long-term sustainability of the remaining co-ops as well.

He suggests there will be need down the road to have some ability to raise capital and says they’re talking to CMS about it. “The only concern long-term, I would say, is the ability to raise capital and that’s totally at the discretion of CMS’ rules,” he says. He’s optimistic the rules will allow it, and the majority of remaining co-ops will be successful.

One of the advantages the Evergreen has is that it is in Maryland. Why is this important???

Consider the results from the first year of a bold change to the way hospitals get paid in Maryland, and the way that the experiment seems to be working.

It was recently reported on the unique system the state is trying to rein in health care costs. Maryland phased out fee-for-service payments to hospitals in favor of a fixed pot of money each year

A report in the latest New England Journal of Medicine says the experiment saved an estimated $116 million in 2014, the first year it was in operation.

The state of Maryland and the Centers for Medicare and Medicaid Services struck an agreement that ended payments to hospitals for each procedure, each emergency room visit and each overnight stay. Instead, Maryland hospitals receive a set amount of money — called a global budget – for the whole year, regardless of how many patients they treat.

Here is the agreement in a nutshell, termed the All-Payer Model:

Under the terms of the Maryland All-Payer Model:

  • Maryland will agree to permanently shift away from its current statutory waiver, which is based on Medicare payment per inpatient admission, in exchange for the new Innovation Center model based on Medicare per capita total hospital cost growth.


  • This model will require Maryland to generate $330 million in Medicare savings over a five year performance period, measured by comparing Maryland’s Medicare per capita total hospital cost growth to the national Medicare per capita total hospital cost growth.


  • This model will require Maryland to limit its annual all-payer per capita total hospital cost growth to 3.58%, the 10-year compound annual growth rate in per capita gross state product.


  • Maryland will shift virtually all of its hospital revenue over the five year performance period into global payment models.


  • Maryland will achieve a number of quality targets designed to promote better care, better health and lower costs. Under the model, the quality of care for Maryland residents, including Medicare, Medicaid, and CHIP beneficiaries will improve as measured by hospital quality and population health measures.
    • Readmissions:  Maryland will commit to reducing its aggregate Medicare 30-day unadjusted all-cause, all-site hospital readmission rate in Maryland to the national Medicare 30-day unadjusted all-cause, all-site readmissions rate over five years.
    • Hospital Acquired Conditions:  Maryland currently operates a program that measures 3M’s 65 Potentially Preventable Conditions. Under this model, Maryland will achieve an annual aggregate reduction of 6.89% in the 65 PPCs over five years for a cumulative reduction of 30%.
    • Population Health:  Maryland will submit an annual report demonstrating its performance along various population health measures.


In essence, Maryland flipped financial incentives for hospitals. In the past, more patients meant more revenue. Now, with revenue fixed for the year, hospitals benefit when patients are healthy and stay out of the hospital.

Many Maryland hospitals have hired care coordinators to follow up with patients once they’ve gone home, to make sure they’re taking their medications, following up with their primary care doctors and so on.

As part of the deal, Maryland promised to cut costs and improve care. There are targets to hit, including saving Medicare $330 million over five years and reducing preventable health problems, such as bed sores and transfusions with the wrong type of blood, by 30 percent.

Maryland also agreed to bring its hospital readmission rates for Medicare patients, which were among the highest in the country, down to the national average.

Preliminary data for 2014 show that while Medicare per capita hospital costs rose nationally by just over 1 percent, they dropped in Maryland by a little more than 1 percent. The savings in the state amounted to $116 million.

Meanwhile, hospitals also reduced the potentially preventable conditions by 26 percent. The state’s readmission rate came down, but remains higher than the national average.

John Colmers, who as chair of Maryland’s Health Services Cost Review Commission worked to negotiate this deal on behalf of the state, calls these results a good start. He’s one of authors of the report, along with other key figures behind the deal.

“We’re not going to rest on our laurels, but we’re pleased with the work that hospitals, physicians and others have done,” he says. “Ultimately the goal here is to provide the best care to patients in the most appropriate settings.”

Even with the early successes, there are still significant challenges to overcome. The article points out that Maryland’s most recent patient-experience scores are among the worst in the country. The other challenge is how the hospitals are going to generate enough profits to maintain their increasing overhead costs with the government requiring increased surveillance and more and more computerization of the systems, as well as the improved technologies seen in the future of medicine. Consider that 42% of the hospitals in Maryland are either revenue neutral or are in the red…in debt. Also as part of the agreement before the start of the fourth year of the model, Maryland will develop a proposal for a new model based on a Medicare total per capita cost of care test to begin no later than after the end of the five year performance period. Interestingly, our local hospital as well as a number of others have already been introduced to the TPR system where we are paid a total amount of $$$ to care for our population. An efficient quality driven system will survive and the rest will barely keep their collective heads above water. Also remember, this set of systems is what the ACA wants all hospital systems to adopt.

However, remember that other insurance companies are already struggling to make money in these markets, and have had to raise premium rates as well as deductibles. Higher rates and deductibles could then lead more healthy people to drop their insurance, which would be the dreaded “death spiral” and if the insurers can’t make a profit through Obamacare it is predicted that “it won’t end well.”

Interesting and scary!!!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s