Set up in 2012 under the Affordable Care Act, the Nevada Health CO-OP announced it would be ceasing operations on 1 January 2016 due to market conditions. It will continue to serve members until the end of the year.
Nevada is one of the 23 US states that have Consumer Oriented and Operated Plans (CO-OPs). The Affordable Care Act, also known as Obamacare, provided more than $3bn in federal loans to help start-up organisations seeking to establish CO-OPs. These are consumer owned, though not all of them work as co-operatives. 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.
“It is with deep sadness that, based on challenging market conditions, the board made a painful decision to wind down operations of the Nevada CO-OP at the end of this year,” said board director Stacey Hatfield. “Rather than spending resources on next year’s uncertain market, we would rather make sure we protect our current members. This is all about providing the most affordable, effective health insurance and service possible.”
Nevada Health CO-OP will honour its individual plans throughout 2015 but members will be able to choose coverage for 2016 with other carriers when open enrolment begins in November 2015. The CO-OP enrolled 14,000 members in 2014 and continued to grow in 2015. However, it claimed that future growth projections were “not large enough to ensure continued successful operations”.
“With a second year of high claims costs and limited opportunities for new investment, it has become clear that the amount of growth required to provide quality care at reasonable rates will be unlikely in the next plan year,” said the CO-OP’s chief executive, Pam Egan. “Nevada Health CO-OP is working responsibly and pro-actively with the Nevada Division of Insurance and the Centers for Medicare and Medicaid Services to ensure that we meet all deadlines and fulfil obligations to our current members.”
Nevada Health CO-OP is the fourth provider created under the ACA that has failed. A CO-OP in Vermont was closed in 2013, before it began selling plans.
Another insurance CO-OP set up in 2013 in Iowa, Co-Oportunity Health ran into a liquidity crisis after the federal government informed the carrier it would receive no additional funding. Co-Oportunity had too many members enrolling and it was not able to cover the start-up costs involved with the loan it had received from the federal government. Another drawback was the fact that CoOportunity had set its premium rates lower than other insurers in order to attract customers, but lost money as it paid their claims. Unlike CoOportunity, dominant carriers can pursue a low rate strategy for years. Iowa’s insurance regulator closed down the non-profit insurer in early 2015.
Louisiana CO-OP will also be winding down its operations this year after suffering a loss of $20m. The CO-OP had enrolled 17,000 members, who can remain with the carrier for the rest of 2015 but will have to find another provider for next year.
A report from the Department of Health and Human Services’ inspector general revealed that 22 of the 23 co-ops created under the ACA had experienced net losses through the end of 2014. Furthermore, 13 of the 23 non-profit insurers enrolled significantly less people than projected.
As new market entrants, CO-OPs face a number of challenges, such as attracting members and pricing premiums that will sustain the business. Some CO-OPs have under-priced their premiums and undervalued their costs.
“The low enrolment and net losses might limit the ability of some co-ops to repay start-up and solvency loans and to remain viable and sustainable,” the report reads.
Kelly Crowe, chief executive of the National Alliance of State Health CO-OPs, said in a statement: “The Nevada Health CO-OP made a responsible decision to cease offering plans after the end of the year based on the financial and marketplace realities it was facing in Nevada in the near future. It does not reflect the specific situation for all CO-OPs, who are helping to reshape the health insurance landscape across the country.
“The myriad challenges facing CO-OPs and many new entrants to the marketplace are well documented, but we are still in the early chapters of a book that’s far from completed. NASHCO strongly believes that CO-OPs will continue their early progress in providing a new form of quality and affordable health insurance to those who need it most.”