The number of remaining CO-OPs continues to click down, a promising infusion of new competition now forcing thousands to buy new coverage as plan after plan fails.

The instrument of the CO-OP’s creation – the Affordable Care Act’s reams of regulations and its tangle of risk-adjustment programs– also hurried many of these plans toward financial collapse.

With 2017 open enrollment and its bigger premium jumps looming, the CO-OP footprint has been drastically reduced  to a handful of players – Community Health Options (Maine/New Hampshire), Minuteman Health (Massachusetts/New Hampshire), Evergreen Health Cooperative (Maryland), HealthRepublic (New Jersey), Montana Health Cooperative (Montana/Idaho), Common Ground (Wisconsin), and New Mexico Health Connections.

Granted, many CO-OPs made unforced errors. Plans that undercut their respective markets came to regret those moves. Arizona’s Meritus and Colorado HealthOp vaulted to the lead shares in their respective exchanges only to find themselves out of business by the end of 2015.

While the risk payment shortfall contributed to rapid demises, the rapid influx of new, sometimes unhealthy members caused claims to soar.

Given their limited claims experience, these new carriers had little chance – despite heavy criticism over the startup funding for CO-OPs, the plans needed even more to back up the high claims that have hit almost every exchange carrier. A seasoned insurer can survive a wave of adverse claims; a newcomer can only fold.

Nonprofit health insurers carry massive cash reserves for a reason. Although insurers including many Blue plans and Kaiser Permanente have faced criticism for having hundreds of millions of dollars in reserves, non-profit carriers don’t have the same resources as for-profit insurers. Those reserves kept them afloat.

A year after CMS dropped the bomb that risk corridor payments would total 12 percent of what insurers requested, the agency is coming after plans in the risk-adjustment program. Plans with healthier populations would pay to offset those with sicker populations and higher claims. That it would cripple smaller carriers didn’t occur to the writers of the law.

As a carrier with less risk than others selling in Connecticut, Healthy CT fell victim to the other end of federal risk adjustment. Demands from CMS for a $13.4 million risk-adjustment payment left the insurer with no way forward. Illinois’ Land of Lincoln Health also went over the brink. After receiving a fraction of the $73 million in risk payments it expected last year, Land of Lincoln was stuck with a $32 million tab from the second readjustment program. Compound that with $50 million in 2015 losses and $17 million through May 2016 – no insurer is going to overcome that.

For the first three open enrollment cycles, CO-OPs could not do any outside fundraising, leaving them dependent on the CMS startup funding to back up their claims expenses. Startups like Oscar Health were not constrained and can weather substantial losses through their private investors.

Now that CMS finally loosened constraints on fundraising, the remaining CO-OPs are likely to follow the lead of New Mexico Health Connections, which will partner with investment company Raymond James to boost private fundraising. It’s one of the few cards the last CO-OPs have left to play.

 

Follow Bill Melville on Twitter: @BillMelvilleDRG

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