Consumer Oriented and Operated Plans set up under the Affordable Care Act (ACA) continue to struggle in the USA: of the original 23 CO-OPs created in 2012, only seven are still standing.
This month, Connecticut CO-OP was placed under an order of supervision by the Connecticut Insurance Department. In May the Ohio Department of Insurance took control over InHealth Mutual, another CO-OP.
The ACA, also known as Obamacare, provided USD $2.4bn in federal loan money to help start-up organisations seeking to establish CO-OPs. These are consumer-owned, although not all work as co-ops. All CO-OPs have a board made up and elected by their members and they also need 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.
In a statement, the Connecticut Insurance Department noted that “this risk adjustment mandate would put the company under significant financial strain”.
The order mentions that challenges associated with the lack of full promised payments under the risk corridor program were a contributing factor in the decision.
The National Alliance of State Health CO-OPs (NASHCO) argued that the risk adjustment programme is not helping to stabilise the market, but in fact placing an extra burden on small insurers such as CO-OPs.
Kelly Crowe, chief executive of NASHCO, said: “Health insurance is a challenging business. Over the last year it’s been shown that some CO-OPs were not adequately funded and did not have the same vast reserves as existing insurers to be able to weather their first years as start-ups.
“Combined with the on-going challenges of the risk-stabilisation programs, CO-OPs and other new, small, and fast growing insurers are operating in a very tough environment.”
On HealthyCT, she said: “As the Connecticut Insurance Commissioner noted in her announcement, HealthyCT’s financial situation is tied to the failure of the risk adjustment program. Unfortunately HealthyCT is not a one-off example, but rather a symptom of much larger problems with a program whose sole function is market stabilisation.
“Despite a preponderance of evidence advanced by NASHCO and CHOICES, as well as pleas from numerous state officials, meaningful reforms to the risk adjustment program do not appear immediately forthcoming.
“Choice and competition were promises made by the ACA. The landmark health law will fall far short of these goals if risk adjustment is allowed to continue in its current form. Case in point: Connecticut will only have two insurers left on the marketplace following HealthyCT’s exit.”
The alliance is member of CHOICES, a coalition of health plans that believe the formula used to determine risk adjustment payments is flawed. Last November, CHOICES released a white paper in which it details what it sees as the problems with risk adjustment.
The risk adjustment programme is intended to transfer revenues from insurers that cover low-risk enrolees to those that cover high-risk enrolees to provide a disincentive for risk selection.
But NASHCO and CHOICES say the formula favours bigger players with more claims experience. They add that small insurers such as CO-OPs do no have as much claims data, which means that their membership can look healthier than in reality. CO-OPs owed nearly $150m under the programme.
Freelancers CO-OP of New Jersey owes $46m, while Land of Lincoln owed $31.8m and New Mexico Health Connections owed $14.6m.
In June, Evergreen Health in Maryland took the federal court claiming that risk adjustment was flawed and detrimental to small insurers, such as CO-OPs. Maryland Insurance Commissioner Al Redmer has also expressed concerns about the programme in his testimony before a House Oversight and Government Reform Committee hearing in February.
In June, Evergreen Health in Maryland filed a suit in federal court alleging that risk adjustment is fundamentally flawed and detrimental to small insurers, such as CO-OPs. Maryland Insurance Commissioner Al Redmer, Jr. has long expressed concerns about the program, including in his testimony before a February House Oversight and Government Reform Committee hearing.
“Risk adjustment continues to be anything but a market-stabilising program,” concluded Ms Crowe. “The payments released yesterday once again punish many health CO-OPs – as well as other small, rapidly growing, and innovative health plans – while rewarding many large and established health insurers.
“It’s difficult to believe this was the intended result when the so-called 3Rs were included in the Affordable Care Act. One thing remains abundantly clear: as currently designed, risk adjustment will only lead to reduced competition, higher premium rates, and deprive many Americans of the choices they desire in health insurance.
“CMS has pledged to take a closer look at the program to ensure its effectiveness. We continue to encourage the agency to listen to our concerns and act expediently to fix the very real flaws in the risk adjustment program.”