The first major casualty among the new non-profit health plans created by the Affordable Care Act was both swift and surprising.
The demise of CoOportunity Health in Iowa and Nebraska does not signal the end for the nation's 22 other Consumer Oriented and Operated Plans (CO-OPs). But CoOportunity's fast descent from exchange success to collapse should give CO-OPs pause about growing too fast or lowering rates too steeply.
Between its two states, CoOportunity had exceeded 100,000 members, a staggering figure for a new health plan. Denied additional federal funding needed to pay claims in December, Iowa Insurance Commissioner Nick Gerhardt took over CoOportunity. After reviewing its operation, Gerhart opted to liquidate the plan on Jan. 23.
The Iowa health insurance market had some unique factors at play. It was among the only states in which a market-dominant Blue plan Wellmark Blue Cross Blue Shield did not sell exchange policies. Wellmark also dominated the state's individual market, which included a large number of people enrolled in plans that weren't compliant with the Affordable Care Act. When the Obama administration extended the life of non-compliant policies through 2016, Wellmark had no incentive to enter the exchange. It's no coincidence that in two of the states with the lowest exchange enrollment among eligible residents (Iowa and South Dakota), Wellmark is the dominant carrier and not in either exchange.
Iowa already had a low uninsured rate and many of the people buying through the exchange were formerly covered by the state's high-risk pool. A small, high-utilizing population in a market with few competitors does not bode well for any startup.
CoOportunity Health got strong reviews from its enrollees, but that doesn't change the fact that it was undercapitalized.
With CoOportunity finished, it might be tempted to see buzzards circling the remaining CO-OPs. So far, only Maine Community Health Options posted a profit, which isn't a ringing endorsement.
The closest corollary to CoOportunity might be PreferredOne, the largest plan by enrollment in Minnesota's exchange. After drawing 60 percent of overall enrollment in 2014, PreferredOne withdrew for 2015.
More than established plans, CO-OPs must be nimble in their markets and not give into the temptation to price too low. A glance at the premiums in states with CO-OPs reveals that many CO-OPs fall on the market's low end or have the regional benchmark, the second-lowest-priced Silver-level plan, which determines the level of subsidy available to consumers. That temptation already snared Tennessee's Community Health Alliance. One of 2014's most invisible CO-OPs, Community Health Alliance froze new enrollment in mid-January.
Blue Cross and Blue Shield of Tennessee's premiums increased for 2015 while the CO-OP reduced premiums, which led to booming enrollment. Stepping out of the exchange market might save Community Health Alliance, but it has already felt the sting of pricing plans too low for the market. With millions in reserves (billions in the case of the largest), a nonprofit Blue plan can get away with that; a nonprofit startup cannot.
Other CO-OPs aren't sending up warning signals. For 2015, CO-OPs in Maine, Massachusetts and Montana all expanded into new states. The Kentucky Health Cooperative hedged its bets and delayed a plan entrance into the West Virginia market.
Others have found different innovations. New Mexico Health Connections has a quality contract with a major Albuquerque provider and plans to look at expansions into Medicare Advantage and Medicaid to diversify its business.
By the end of 2015, we will probably be talking about the end of a few more CO-OPs. They cannot all survive. Some have estimated they could consolidate into eight to 10 multi-state organizations within a few years.
For now, the lessons for CO-OPs are simple. Know your market. Price competitively, but don't undercut the market. And remember that a big increase in enrollment could be a blessing or a curse.