Health Care Co-op Closings Narrow Consumers' Choices

Posted on October 27, 2015

THE NEW YORK TIMES
By REED ABELSON and ABBY GOODNOUGHOCT. 25, 2015

The grim announcements keep coming, picking up pace in recent weeks.
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About a third, or eight, alternative health insurers created under President Obama's health care law to spur competition that might have made coverage less expensive for consumers are shutting down. The three largest are among that number. Only 14 of the so-called cooperatives are still standing, some precariously.

The toll of failed co-op insurers, which were intended to challenge dominant companies that wield considerable power to dictate prices, has left about 500,000 customers scrambling to find health insurance for next year. A ninth co-op, which served Iowa and Nebraska, closed in February.

At a time when the industry is experiencing a wave of consolidation, with giants like Anthem and Aetna planning to buy their smaller rivals, the vanishing co-ops will leave some consumers with fewer choices — and potentially higher prices.

The failures include co-ops in New York, Colorado, Kentucky and South Carolina.

The shuttering of these start-ups amounts to what could be a loss of nearly $1 billion in federal loans provided to help them get started. And the cascading series of failures has also led to skepticism about the Obama administration's commitment to this venture.

Some policy analysts say they were doomed from the beginning.

Republican critics of the health law are seizing upon the issue, and many leaders of the closing co-ops say the government's actions contributed to their problems.

“They may have been the kamikaze pilots for health care reform,� said Mark A. Hall, a health policy professor at Wake Forest University.

Created as a concession to Democrats who wanted the health care law to include a government-run plan as an alternative to private insurers, the co-ops faced significant hurdles from the start. The Republican-controlled Congress slashed their initial funding to $2.4 billion from $6 billion and, more recently, restricted the administration's ability to help insurers with unexpectedly large costs in the first few years of the new exchanges.

Former Senator Kent Conrad, the North Dakota Democrat who proposed the co-ops, said they were “sabotaged.�

“Those who wanted to kill them — largely Republicans and competing insurance companies — just step by step took actions to subvert them and to assure they would have an extraordinarily difficult time surviving,� he said.

The administration says it is doing what it can. Kevin Counihan, chief executive of the federal insurance marketplace, said Sylvia Mathews Burwell, secretary of health and human services, considers the co-op program a priority.

As consumer-governed start-ups, the co-ops tried to sell some of the lowest-cost plans that would put downward pressure on prices. They offered one of the two least expensive midrange plans in more than half the counties where they operated this year, according to the Kaiser Family Foundation, especially in rural areas that have historically suffered from a lack of competition and high prices.

But the co-ops' low prices left them vulnerable to significant losses. Without the necessary financing to keep them afloat, many are crashing.

After the Republicans insisted late last year on limiting the ability of the administration to pay for one of the programs to protect the insurers from losses in the early years, administration officials say they had few, if any, options. “Those were the deck of cards that we had to work with,� Mr. Counihan said, adding that the insurers should have not have been surprised.

This month, all insurance companies that incurred unexpected losses selling plans through the new exchanges learned that they would get less than 13 cents of every dollar the federal government owes them for 2014. Many of the failed co-ops described that turn of events as their undoing. While most private insurers have enough reserves or access to funds to continue to operate, state regulators shut down some of the co-ops because of solvency concerns. Federal officials say the insurers will eventually receive more of what they were owed.

The co-ops say the administration has left many of them with few choices. “These are closures because of unkept promises,� said Kelly Crowe, the chief executive of the National Alliance of State Health Co-ops.

Even after Congress demanded changes to the program, the co-ops say they were reassured that they would be paid more of what they were due. “We were blindsided,� said Julia Hutchins, the chief executive of Colorado HealthOP.

Ms. Crowe and others say the co-ops' overseer, the Centers for Medicare and Medicaid Services, has also stymied their quest to find other sources of money. They have even sought solutions like teaming up with another nonprofit. “We've not seen any shift in the willingness of C.M.S. to consider or approve any model,� she said of the agency.

The co-ops, and some observers, believe the administration has been reluctant to take steps to try to save the struggling entities. Some analysts argue that some of the co-ops failed because they simply set their prices too low and would have failed eventually, even if they had received the money they were owed.

If an insurer was dependent on those payments to remain viable, “it was already too late,� said Deep Banerjee, a credit analyst with Standard & Poor's, which had warned this year that many of the co-ops were vulnerable.

Mr. Counihan pointed out that more than half of all new health insurers do not succeed. The co-ops' federal loans carried restrictions like not being able to use the funds for marketing that made their odds of surviving steeper than most.

But he also said that strong management was a common theme among the co-ops that have survived to this point.

He added, “We are continuing to look for any other ways that we can appropriately find funds� to help the remaining co-ops stay in business. He also said he had been involved in attempts for some of the co-ops to find outside capital, including in Kentucky, where a plan for the co-op to team up with a nonprofit Medicaid plan in Louisville failed.

He emphasized that the section of the Affordable Care Act laying out the rules for co-ops did not allow for much flexibility.

The co-op in Maine, Community Health Options, managed to achieve a surplus last year. Its chief executive, Kevin Lewis, said it had not counted on receiving any payments from the federal government through the program to protect from losses and had budgeted accordingly.

Counties that are mostly rural are disproportionately affected by the demise of the nine co-ops to date, according to the Kaiser Family Foundation's analysis. In almost two-thirds of rural counties, they offered one of the two least expensive silver plans.

In some areas, their presence allowed consumers to choose among three insurers, which many experts say is the lowest number needed to put downward pressure on prices. Nevada will have four counties with only two choices, after the co-op and another insurer exited, and 10 counties with only a single choice: Anthem, according to Kaiser.

In Kentucky, where Kentucky Health Cooperative offered plans statewide and had 55,000 members this year, it would have been the third insurer offering plans in 59 of 120 counties for 2016, said Glenn Jennings, the co-op's interim chief executive. Now people in those counties, which are mostly rural, will have just two choices.

But Mr. Jennings said he believed the co-op's presence over the last two years “plowed ground for everybody� and led to more insurers entering the exchange, known as Kynect. Aetna and UnitedHealth Group are selling plans on the exchange for 2016, joining five other insurers who will sell in at least some regions of Kentucky.

“The co-op experiment has netted better choices for Kentuckians,� Mr. Jennings said.

But consumers are left without the alternative that co-ops offered: a new nonprofit insurer, run by customers of those plans.

Peter Kruty, 60, who owns a small printing business in Brooklyn, said he had no choice but to put up with expensive, disappointing health coverage from giant companies before the federal law took effect.

He and his wife signed up with Health Republic, which is now closing, for 2014, choosing a plan that provided generous benefits for $477 a month after their federal subsidy. They stuck with Health Republic this year even though their monthly premium rose to $623, Mr. Kruty said, because “for once we had really usable insurance� that did not deny claims.

Mr. Kruty's broker had also recommended a plan from Empire Blue Cross Blue Shield, a unit of Anthem, but he was drawn to Health Republic after reading its mission statement, he said. “I liked what they stood for — a sense that everyone's health is a community concern and we are all in this together,� he said.