With the shutdown of three more consumer operated and oriented plans (CO-OPs), more than 500,000 Americans will lose the health insurance they have now.
Both Kentucky Health Cooperative (51,000 members) and Health Republic Insurance of New York (215,000) folded in October, citing insufficient premiums to cover members’ health expenses and their own operation expenses. Arches Health Plan in Utah also announced its closure, leaving 35,000 without coverage for 2016.
The failures follow those of seven other CO-OPs, leaving a huge group of previously covered individuals with the burden of finding new coverage for 2016.
Health Republic of New York lost an estimated $52.7 million in the first six months of this year after losing $77.5 million last year.
Kentucky Health Cooperative was the second-largest CO-OP in the country and insured 75 percent of the state’s residents. It had been awarded $146.5 million in taxpayer loans to get off the ground. Rather than increase premiums more than 20 percent this year, the insurer shut down.
Arches departure from the marketplace leaves rural Utahns with just one insurer to choose from on the exchange, meaning some customers might have to choose between a subsidized plan or out-of-network charges for their preferred provider. A proposed rate increase of 43 percent couldn’t save the plan.
A federal audit in August discovered that 22 of the 23 insurance cooperatives created under the Affordable Care Act are now losing money and struggling to repay federal loans. Ten of them have closed or are closing, and 13 are still alive, with some of them hanging on only by a thread.
What Went Wrong?
In the two years since the ACA exchanges have opened, insurers have struggled to accurately gauge premium revenues against health claim expenses. The greatest troubles have been the unknown health status of potential members and their inconsistent coverage history. Those factors meant plans had to sometimes cover years’ worth of unmet needs. Insurers are also handicapped in how much premiums can vary among those in the same age group.
There were programs put in place to help mediate risk among all insurance companies to incentivize participation in the marketplace. However, the profit sharing hasn’t covered the large losses that have forced many plans off the market. On October 1, many CO-OPs were taken aback when they learned that CMS would pay out less than 13 cents for every dollar it owed them for the unexpected losses they incurred in 2014.
What’s the Outlook?
Although it is questionable if the health insurance CO-OP model will survive, what remains the same is individuals are still required to have insurance. Eliminating one insurer just leaves a vacuum for the next insurer to fill. However, as a result of the failure of so many CO-OPs, shoppers will see fewer choices for health insurance in 2016.
For example, due to the loss of Kentucky Health Cooperative, Kentuckians in 59 of 120 counties will have only two choices. Moreover, due to the loss of one CO-OP and one other insurer, those in Nevada will also have limited choices. Nevadans in four of the state’s counties will have only two options and those in ten of the state’s counties will have only one option (Anthem).
Health insurance CO-OPs were created to foster competition and lower prices in the market. With so many going out of business, shoppers will likely face increased health insurance costs.