A further four US health CO-OPs set to close

A further four CO-OPs (consumer operated and oriented plans) set up under America’s Affordable Care Act will close at the end of the year.

Last month the largest provider, Health Republic Insurance of New York, announced it would cease to operate from 2016. The not-for-profit healthcare organisation had enrolled over 200,000 members who will have to choose a new insurance provider during the next open enrolment period from 1 November 2015.

Announcing the closure in a letter to the members, chief executive Debra Friedman said the insurer had struggled to cope with the structure of the programme.

She said: “While we are deeply disappointed with this outcome, we believe it is in the best interests of our members. Starting a new insurance company is a daunting task in any environment, but the systemic challenges placed on us by the structure of the CO-OP program were simply too difficult.”

Health Republic Insurance is the fourth CO-OP to close this year, after CO-OPs in Nevada, Louisiana and Iowa announced they would wind down.

The fifth is the Kentucky Health Co-operative, which will end its 51,000 memberships on 31 December 2015. The organisation lost $50 million last year after selling 75% of the private insurance policies purchased on Kynect in its first year.

Last week Health Republic Insurance in Oregon gave notice that it was winding down its business by the end of the year. Health Republic covers 15,000 individuals and small-group employees. Also last week, the Colorado Division of Insurance said it would close Colorado HealthOP, but in this case the organisation plans on fighting the state’s decision, calling it “irresponsible and premature”.

Sixteen other CO-OP insurers are still active across the USA, but the closures mean that almost one third will have failed. The Affordable Care Act, better known as Obamacare, provided more than $3bn in federal loans to help start-up organisations seeking to establish CO-OPs.

While not all are co-operatives, they have a board made up and elected by their members and must work on a non-profit basis. Therefore, all profit is returned to members either in the form of refunds, premium reductions or expanded benefits.

Kelly Crowe, chief executive of the National Alliance of State Health CO-OPs (NASHCO), commented in a statement: “Health insurance CO-OPs have been hamstrung by the structure of the program and the way the Affordable Care Act was implemented. Though it has become clear that initial capitalisation levels for most CO-OPs were insufficient for the short term, regulatory obstacles have continued to make it virtually impossible for these CO-OPs to raise additional third party capital to support growth.”

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. Some CO-OPs have under-priced their premiums and undervalued their costs.

“More recently, the risk adjustment and risk corridor programmes – programmes intended to help offset the unpredictability of risk and adverse selection for all insurers entering the marketplace – have hit many CO-OPs and other new insurers particularly hard, while simultaneously bolstering many large, established insurers,” added Ms Crowe.

“Despite these challenges and announced dissolution of several CO-OPs, NASHCO remains firm in its view that the CO-OPs play a critical role in providing a non-profit and member-governed alternative for high-quality health insurance. They continue to drive innovation, keep rates lower in states in which they operate, and provide members with a say over their health insurance decisions.”

“NASHCO will continue to work with our members, regulators, and other stakeholders to help create an environment in which CO-OPs can more easily achieve long-term success.”