In an attempt to save healthcare CO-OPs, the USA is giving state government agencies and investors the chance to exercise some control of their governance. The move is designed to incentivise states to bail out healthcare consumer oriented and operated plans (CO-OPs) that have been set up under the Affordable Care Act (ACA) – also known as Obamacare.
The Centers for Medicare and Medicaid Services (CMS) issued an interim final rule that allows the 11 consumer orientated and operated plans to seek finance from private investors and allow state government agencies and investors to place lower-level officials on the co-ops’ boards of directors. This means state employees or officials with expertise could join the board of a CO-OP.
CMS is the USA’s federal agency, which administers Medicare, Medicaid and the State Children’s Health Insurance Program. It forms part of the Department of Health and Human Services.
The ACA initially prevented representatives from the federal, state or local government from serving on the CO-OP’s boards of directors. But CMS recently changed the definition of the term “representative” to “senior or high-level” representative.
The ACA provided $2.4bn in federal loan money to help establish CO-OPs. These are consumer-owned, although not all of them work as co-operatives. All CO-OPs have a board made up of and elected by their members and are required to work on a non-profit basis. Therefore, all profit is returned to members either in the form of refunds, premium reductions or expanded benefits.
Of the 23 CO-OPs set up under the act, 12 closed down after the government cut funding – and, according to Politico, the remaining 11 had a combined loss of $400m last year.
The Department of Health and Human Services will decide which of the CO-OPs will be financially stable enough to continue selling coverage on the exchanges.
CO-OPs were set up to increase competition in the healthcare sector but faced a key problem – customers tend to buy insurance when they are sick and give it up once they get better, knowing that they can opt in again during the next open enrolment period or sooner if they qualify for an exemption.
The more healthy customers leave, the more insurers have to raise prices, which in turn, can push more customers to drop out. And since sick customers tend to remain, the cost supported by the CO-OPs was higher than expected.
A 2015 report by the Department of Health and Human Services highlighted that actual enrolment and profitability were lower than projections made by CO-OPs, which might affect their ability to repay loans provided under the affordable care act.
Unlike their competitors, CO-OPs do not have the vast capital reserves to offset early marketplace losses – a reality reflected in CO-OPs’ 2015 financial reports
Kelly Crowe, chief executive of the National Alliance of State Health CO-OPs (NASHCO), said: “CO-OPs’ financial challenges are similar to those of the large and well-established commercial insurers, which are projected to lose potentially billions during the early years of the ACA.
“Unlike their competitors, however, CO-OPs do not have the vast capital reserves to offset early marketplace losses – a reality reflected in CO-OPs’ 2015 financial reports.”
She added: “CO-OPs are committed to providing affordable and high-quality health insurance to the Americans who need it most. Hundreds of thousands of Americans are enrolled in a CO-OP, where they have a real choice and a type of member-focused health insurance that was previously elusive.
“Not unlike start-ups in any other industry, CO-OPs are still trying to scale their operations, build local brand recognition, and rationalise expenses after only two full years of existence. Combined with the disappointing breakdown in two of the three ACA risk mitigation programmes, known collectively as the 3Rs, CO-OPs struggled financially in 2015. But we are optimistic about – and already have evidence indicating – improved operational and financial performance in 2016.”