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Insurance Co-Ops Created by Health Law Move into Second Year of Operation

By Kerry Young, CQ HealthBeat Associate Editor

October 10, 2014 -- Scoffed at by many conservatives and partly abandoned by Democrats, nonprofit health cooperatives (Co-Ops) that sell coverage to the uninsured are in some ways defying expectations.

All 23 active coops plan to sell insurance in 2015, reaching a total of 26 states, according to the Centers for Medicare and Medicaid Services. The Co-Ops are proceeding even though some attracted only sparse enrollment for 2014, and a failed Vermont project stoked skepticism about this program.

"I was mildly surprised at the apparent success, at least in terms of enrollment, of a couple of them," said Scott Harrington, chairman of the department of health care management at the University of Pennsylvania's Wharton School, in an interview.

Among the early standouts, according to Harrington, is CoOpportunity Health (CoOp), which serves Nebraska and Iowa. CoOp pegs its current enrollment at about 93,000. Only Health Republic Insurance of New York has attracted more customers, with an enrollment of about 150,000, has more customers, according to a survey by CQ HealthBeat. Twenty of the coops provided enrollment estimates and figures. Oregon's Health Co-Op and InHealth of Ohio declined to do so, while Tennessee's Community Health Alliance didn't respond to phone and email inquiries.

In the next rung of reported enrollment figures are Kentucky Health Cooperative, with enrollment of about 57,000, Consumers Choice Health Plan of South Carolina at about 49,000, and Maine Community Health Options, at about 40,000. At the lowest end of the scale, Minuteman Health of Massachusetts had enrollment of about 1,800.

The immediate challenge for many of the coops is to quickly grow to cover at least 50,000 to 100,000, and then continue to expand, Harrington said.

"You need to be looking at 100,000 plus, ideally more than that in terms of enrollment, in part to manage volatility, but also to be able to spread the fixed costs associated with running the operation over a somewhat sizeable client base," Harrington said, noting that outlook is "more dicey" for smaller coops.

"It's not clear that they are going to generate sufficient scale to by any means thrive," he said.

The co-ops meant to assuage Democrats angered by the lack of a public, or government, option in the 2010 health law (PL 111-148, PL 111-152). Their early progress has been monitored by Republicans on the House Oversight and Government Reform Committee. A February hearing "Health Insurance Co-ops: Examining Obamacare's $2 Billion Loan Gamble" focused on $2 billion of start-up loans that need to be repaid in five years and solvency loans, which the coops have 15 years to repay.

Rep. James Lankford, R-Okla., chairman of Oversight's health panel, cited federal estimates in saying an $860 million loss could be expected from the failure of some coops, calling the program "an investment disaster.". Democrats have allowed the whittling of funds for new coops from a one-time target $6 billion to about $2 billion.

It's not possible to tell yet how well the coops are managing, in part due to safety nets that apply broadly to insurers, said Robert Laszewski, president of consulting firm Health Policy and Strategy Associates and a former chief operating officer for a health and group benefits insurer.

In addition to the special loans for Co-Ops, the Co-Ops will benefit from risk adjustment provisions in effect through 2016 to insulate the insurers from absorbing larger-then-expected losses.

"We don't know what the real prices are yet," Laszewski said. "We won't until 2017, and that's particularly true of the co-ops."

Coop backers admit that these new insurers face significant challenges. Some risk adjustment payments are delayed well past the time that insurers would face higher-than-expected claims, which is more of a challenge for new firms, said Jan VanRiper, the director of the trade association for the National Alliance of State Health Co-Ops.

Co-Ops are especially vulnerable because they try to serve formerly uninsured individuals who are likely to have deferred health care costs, she said. The firms also began their first enrollment period amid the technical problems that plagued the federal health exchange and some state marketplaces. The co-ops are marketed themselves as more consumer oriented than the giants in the field, many of which are publicly traded.

"The expectation, of course, was that with more competition in those markets, prices would be driven down, hence benefiting not only private payers but governments that subsidized some premiums for private payers," VanRiper said. "Not only have prices been driven down, but Co-Ops are offering a consumer-driven alternative to traditional insurance.

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