Co-op failures force citizens to scramble for higher cost mandatory health insurance
By S. KALYANAM
WASHINGTON—Amidst rising concerns surrounding health co-ops shutting down in various parts of the United States, Marylanders have nothing to worry about, according to health insurance experts and co-op officials.
The state co-op is going strong, they said.
Since the start of the year, 12 health insurance co-ops (or Consumer Operated and Oriented Plans), out of the 23 started under President Barack Obama’s 2010 Affordable Care Act have closed their doors or announced their intention to do so soon.
The failures started with the co-ops in Iowa and Nebraska folding in February, followed by Nevada in August and Louisiana and New York in September.
October alone saw four co-ops—in Kentucky, Tennessee, Oregon and Colorado—go down. The newest co-op to join that casualty list was in Michigan. Yet another co-op in Utah intends to stop services at the end of December.
Further, two co-ops in Arizona, Meritus Health Partners and Meritus Mutual Health Partners, are fighting closure and were placed under state supervision.
Thousands of people who turned to co-ops for non-profit insurance priced lower than private providers in the market are now forced to scramble for other options.
But Evergreen Health, Maryland’s sole co-op, says it has got its consumers’ backs.
“They do not have to worry,” said Peter Beilenson, CEO of Evergreen in Baltimore.
The co-op managed to reduce its medical loss ratio, which is how much of the premium the co-op loses in paying out for medical benefits for its patients.
Evergreen’s medical loss ratio went down from 113 percent in 2014 to 78 percent as of June this year, according to data from Standard & Poor’s Ratings Services (S&P).
The co-op also received funds from the Centers for Medicare and Medicaid Services (CMS), making its capital around $13 million at the end of the second quarter of 2015, said Deep Banerjee, director of financial services ratings at S&P in New York.
This lowered Evergreen’s debt leverage ratio from 62 percent last year to 50 percent in 2015. “Debt leverage ratio provides an indication of how much debt is being used to finance the company,” Banerjee explained.
The co-op has $50 million in assets, Beilenson said, adding that the people enrolled in the co-op were generally more healthy than those enrolled in other co-ops.
Enrollments are growing, said Beilenson. “We increased by ten-fold our number of individual members in 2015 to 4,500 from about 450 in 2014.”
The initial phase was undoubtedly rough for the co-op because Blue Cross Blue Shield and CareFirst had significantly underpriced the Maryland market, taking in its sweep 95 percent of the individuals on the exchange, he said.
The co-op is at 25,000 to 26,000 members (individual and group) and is expected to hit 30,000 by the end of the year, Beilenson said.
According to insurance experts, low enrollments and solvency issues were the main reasons why the co-ops dissolved. Additionally, enrollments from very sick people with previously untreated health conditions can put a co-op at a greater risk.
“After receiving hundreds of millions of dollars in government startup loans, most co-ops didn’t meet enrollment or profitability targets,” said Grace-Marie Turner, president of the Galen Institute in Alexandria, Va., speaking at a discussion on the failure of co-ops held at the American Enterprise Institute recently.
Even solvency loans from the Department of Health and Human Services (HHS) given to co-ops like the Kentucky Healthcare Cooperative did not help.
“HHS never explained their criteria to decide which co-ops were going to get solvency loans (and) which were not. It was said to have been relatively arbitrary, which in Washington means politically driven,” she said.
Obamacare has drawn a lot of flak from Republicans, including Senate Majority Leader Mitch McConnell of Kentucky, who called the failed co-op in his state one of the “many failures of Obamacare.” That closing left nearly 51,000 people in the lurch.
Meanwhile, Obamacare’s open enrollment period began this week and people in the states where the co-ops collapsed have to scramble for new insurance.
“Eight down and more to come in terms of insolvencies,” said Scott Harrington, professor of health care management and insurance and risk management at University of Pennsylvania’s Wharton School.
Although more co-ops are expected to have problems and go out of business during the open season in 2016, the Maryland co-op is expecting more enrollments during this phase.
“We are expecting to get 8,000 or 10,000 individuals on the exchange this year and about another 15,000 small and large group members,” Beilenson said. “The goal is in the next year, 2016, around 52,000 to 53,000.”
“We are clearly one of the top two or three in terms of financial viability of the remaining 10 or 11,” he said.
Most enrollments for this co-op come from the Baltimore metro area followed by Howard, Anne Arundel and Harford Counties.
The Galen Institute’s Turner has sought congressional action asking for assurance that “no additional federal dollars are wasted on this program.”
The Congress should also investigate how $2.4 billion in taxpayers loans were spent, she said.