Most Health Insurance Co-ops Are Losing Money, Federal Audit Finds

Posted on August 19, 2015

THE NEW YORK TIMES
By ROBERT PEARAUG. 14, 2015

WASHINGTON — Most federal insurance cooperatives created under the Affordable Care Act are losing money and could have difficulty repaying millions of dollars in federal loans, an internal government audit has found, prompting the Obama administration to step up supervision of the carriers.

Daniel R. Levinson, the inspector general at the Department of Health and Human Services, said that most of the insurance co-ops enrolled fewer people than they had predicted, and that 22 of the 23 co-ops lost money last year.

Even as overall enrollments for insurance have increased, many of the co-ops are still losing money, a review of 2015 data by federal health officials shows.

In February, the Iowa insurance commissioner moved to shut down a nonprofit co-op insurer, CoOportunity Health, created with $145 million in federal loans, and a state court found it insolvent because of “adverse claims experience.� Another carrier, the Louisiana Health Cooperative, started with $65 million in federal loans, said it would voluntarily halt operations at the end of this year.

The Louisiana co-op was “not growing fast enough to maintain a healthy future,� said Greg Cromer, the chief executive of the Louisiana plan who is also a Republican state legislator and chairman of the House Insurance Committee.

Over all, co-ops have received $2.4 billion in federal loans to help pay start-up costs and to meet state solvency requirements.

“The low enrollments and net losses might limit the ability of some co-ops to repay start-up and solvency loans and to remain viable and sustainable,� Mr. Levinson said in a report analyzing the insurers' financial condition.

Andrew M. Slavitt, the acting administrator at the federal Centers for Medicare and Medicaid Services, said his agency “has recently increased the data and financial reporting requirements for co-ops.�

As part of their stepped-up supervision, administration officials said that six co-ops were on an informal watch list. The government is closely monitoring their operations and financial status and has warned them about performance problems or required them to take corrective action. The officials refused to identify the co-ops subject to what they call “enhanced oversight.�

Congress authorized the co-ops to increase competition in state insurance markets and to create additional choices for consumers, with the hope of holding down premiums.

Dr. Martin E. Hickey, the chief executive of the New Mexico co-op, who is also chairman of the National Alliance of State Health Co-ops, said it was unrealistic to expect them to achieve a surplus right away.

“This is inherently a risky venture, a tough, tough business,� Dr. Hickey said. “There will likely be a handful of co-ops that fail. I don't deny that. But you will probably see the red ink disappear for some plans starting next year.�

Susan Dunlap, a spokeswoman for the Kentucky Health Cooperative, said that 52,000 people were now enrolled in its plans, down from 56,680 at the end of last year. But, she said, the co-op still has more than half of all the people who obtained coverage through the state's insurance exchange.

The Kentucky plan lost $50 million last year, more than any other insurance co-op, as it paid out $1.25 in claims for every dollar it collected in premiums.

“We attracted many consumers with serious illnesses,� Ms. Dunlap said. “One of our most popular plans had low premiums, low out-of-pocket costs and a large network of providers. It's difficult, it's uphill, but we are energetic and hopeful. Trends are going in the right direction.�

The Kentucky insurance commissioner recently approved rate increases averaging 25 percent for the Kentucky Health Cooperative in 2016. The co-op said the additional revenue would help reduce its losses.

At the same time, the inspector general found that a few co-ops had done exceptionally well. The one in Maine, Community Health Options, has captured more than half of the market and achieved a surplus, with revenues exceeding expenses by $5.9 million last year. The New York co-op, Health Republic Insurance, lost money, but it signed up 155,400 people, five times its projected enrollment and far more than any other co-op.

Michael J. Fagan, a spokesman for Health Republic, said that the carrier lost $77.5 million on premium revenue of $521 million last year, for a “negative margin� of 14.8 percent. But, he said, “the co-ops were never intended to be profitable in their first three years.�

Even as some of the co-ops were losing money, tax returns show that their executives were paid sizable salaries. For example, the South Carolina co-op, the Consumers' Choice Health Plan, paid its top two executives $458,196 and $351,710 in 2013, according to the return it filed as a tax-exempt organization in November 2014. The Nevada co-op reported paying its top executive $340,000.

Jerry W. Burgess, the president of the South Carolina co-op, said: “I am not overpaid. My compensation is similar to that at nonprofit health care enterprises of similar size.� Mr. Burgess is also president of the Tennessee co-op, which he said pays half his salary.

Enrollment in the South Carolina co-op stands at 70,000, up from 46,000 at the end of last year, Mr. Burgess said. “We are still losing money,� he said, “but will break even in 2016.�

Likewise, Tom Zumtobel, the chief executive of the Arizona co-op, Meritus Health Partners, said it lost $7.2 million in 2014 and was projecting a loss of $6.7 million this year, but would operate in the black next year.

Health insurance co-ops are generally governed by their members. The Affordable Care Act says they cannot use federal loan funds for marketing. Co-op executives said this put them at a disadvantage in competing against well-known brands like Blue Cross and Blue Shield, Aetna and Humana.