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Colorado Co-Op Prods Congress on $2.5 Billion Risk Program Gap

By Kerry Young, CQ Roll Call

October 16, 2015 -- A Colorado health cooperative (co-op) is going public with its fight against a dramatic slashing of payments from a federal risk-management program, which it says puts its fledgling business in peril.

Colorado HealthOP Chief Executive Julia Hutchins is turning to new and traditional media to try to prod federal action to aid the survivors among the roughly two dozen nonprofit insurers that were created with loans made possible through the 2010 health law.

Most of these co-ops started operations only last year and face strict demands on capital reserves. Some will be deeply affected by a $2.5 billion shortfall in the federal risk corridor program and subsequent 87 percent reduction in expected payments for this year.

"We were really blindsided by that," Hutchins said in a Colorado Public Radio article, which the co-op pasted on its Facebook page. "We felt like we’d done our part in helping serve individuals who really needed insurance as the Affordable Care Act rolled out. Now we’re the ones left holding the bag."

Other co-ops are more quietly supporting the work of their trade group in pressing lawmakers and the Obama administration for help. Their Facebook and web pages and Twitter feeds are free of the kinds of direct appeals for support that Hutchins is making. The National Alliance of State Health CO-OPs (NASHCO) is calling for full funding of the risk corridor program and changes in rules that they say are obstacles to the growth of these new business.

"To date, regulatory obstacles have made it virtually impossible to raise additional capital to support growth," said Kelly Crowe, chief executive of NASHCO, in an Oct. 1 statement.

The co-ops face tough odds in securing assistance from Congress, whether in terms of additional funds to address the shortfall or help in changing the rules governing the program. Many Republicans long have questioned the premise of using federal funds to start new insurance co-ops and have expected them to fail.

Many co-ops counted on the three-year risk corridor program's payments through 2017, which were intended to help private and nonprofit insurers adjust to a market vastly changed by the health overhaul.

But in December, Republicans added a provision to the fiscal 2015 spending package (PL 113-235) that blocked the Obama administration from trying to tap major sources of federal funds for the risk corridor program. This program is designed to shift money collected from the insurers with the lowest costs to those with the highest, in order to limit losses and gains. Without access to other funds, the Centers for Medicare and Medicaid Services (CMS) had to apply the $362 million collected from insurers against $2.87 billion in claims for this year's payments.

That shortfall caused the leaders of the Kentucky Health Cooperative to decide to cease operations at the end of this year. Senate Majority Leader Mitch McConnell, R-Ky., described the failure as another harmful consequence of the health overhaul. Tennessee regulators on Wednesday said another co-op, Community Health Alliance, would end operations. On Friday afternoon, Health Republic Insurance of Oregon announced that it would fold, citing the reduction in risk corridor payments as a cause.

That brings the number of co-ops that have failed since starting operations to seven. Last month, state insurance regulators separately announced that they would take control of a Louisiana health co-op and began to wind down a New York co-op. The Nevada Health Co-op announced in August that it had made a voluntary decision to cease operations at the end of this year, although state regulators last month sought to take control of the process through receivership. CoOportunity of Nebraska and Iowa was forced to shut down last December. Another co-op project never started operations, failing after Vermont regulators denied its bid for a license.

Many of the surviving co-ops expect to sell insurance next year, even with the disappointing payouts from the risk corridor program. Among them is Boston-based Minuteman Health, which said in a statement that it had "lacked confidence that the program would work as forecast by CMS and had not counted on the money."

Minuteman Health, which estimated enrollment this year at about 14,000, was owed about $281,088 through the risk corridor program for its results last year.

"We recorded this as required on our income statement, but on our balance sheet we categorized the Risk Corridor receivable as a 'non-admitted asset'—a polite, insurance-speak way of saying we do not believe we will ever see the money," the co-op said in a statement. "In short, for 2014 the Risk Corridor amount due Minuteman was immaterial and Minuteman did not count on receiving it."

For Colorado HealthOP, though, the risk corridor shortfall is a true peril, according to Hutchins. "The federal government has reneged on its obligations to pay Colorado HealthOP more than $10 million...which jeopardizes its ability to meet capital reserve requirements," she said.

Colorado HealthOP still might be able to make a profit in 2016, Hutchins said. But despite the possibility of a positive cash flow, the stringent capital reserves requirements could cause the co-op to collapse. The reduction in federal payments increases this risk, according to Hutchins.

"Our business model works. It's the vagaries of politics that are broken," she said. "Colorado HealthOP has fulfilled its responsibility; now it is time for Congress to step up and fulfill theirs."

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