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Obamacare co-ops try to swim—not sink—as red ink persists

Obamacare co-ops were supposed to be a new way to get insurance to people to help them maintain their health, but more than a year after they first began selling coverage plans, a number of those co-ops might be needing some financial medicine of their own.

Before last Friday's failure of a Midwest-based co-op, a new analysis of the Obamacare co-ops detailed the losses that were booked by all but one of the two dozen nonprofit insurers through the third quarter of 2014.

Aggregate underwriting losses at the co-ops hit nearly $244 million through Sept. 30, compared to just more than $72 million in the first quarter of 2014.

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The A.M. Best analysis also revealed how the debt burden carried by all of the co-ops, which have cumulatively received nearly $2 billion in federal loans to start their businesses, has increased relative to their cash and other assets on hand.

And uncertainty over the future funding of a financial shock absorber for insurers built into Obamacare has left a number of the co-ops exposed to the possibility of having to write off what could be a large chunk of income that they are currently booking as an asset if that funding doesn't materialize, A.M. Best found.

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"A.M. Best is concerned about the financial viability of several of these plans," the rating agency said in its report on the co-ops, which the Affordable Care Act created with the goal of providing competitively priced insurance plans on Obamacare exchanges.

If some of those plans go out of business, it would mean fewer choices for consumers in their respective markets, and potentially higher premium prices.

The report comes weeks after the Iowa insurance commissioner put one of the co-ops, CoOportunity Health, into rehabilitation in late December, taking control of the insurer because of worries the co-op was not adequately capitalized. Nebraska's insurance department suspended CoOportunity Health's certificate of authority a day later.

Last Friday, Iowa's insurance commissioner said he would seek to liquidate the co-op. The more than 100,000 customers of the insurer in both his state and Nebraska have been urged to seek new coverage.

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On Jan. 15, Tennessee's Obamacare co-op, Community Health Alliance, announced it was freezing enrollment for the 2015 plan year as a "preventative measure to support the long-term viability of" the co-op, which hopes to resume general enrollment later this year for plans that go into effect in 2016.

That move came after the Tennessee co-op reported that enrollment in 2015 plans had grown "exponentially" from 2014.

Andrew Edelsberg, one of the authors of the A.M. Best report, said, "It's really hard to handicap it," when asked if he thought it was likely that one or more co-ops beyond Iowa's would fail.

But Edelsberg noted that when the agency looked at the co-ops last year, just seven had outstanding long-term low-interest loans from the federal government that amounted to more than 100 percent of the value of their capital and surplus.

"Now, they're all over 100 percent," he said.

Arizona's co-op Meritus Mutual Health Partners has long-term loans that are nearly 1,000 percent of the value of its capital and surplus—and 14 others have loans that total more than 200 percent of their assets, according to A.M. Best.

Size matters

Edelsberg's co-author, Sally Rosen, said that because the co-ops are relatively small and still essentially in the start-up phase, they may be more vulnerable to a financial squeeze than larger, more established insurers who can spread out their costs.

And as a group, co-ops had premiums being paid by only about 523,000 customers, amounting to less than 8 percent of total Obamacare enrollment nationally.

Rosen also said some of the co-ops, who tended to price their plans lower than larger competitors, may be experiencing "higher utilization" of health benefits by customers, which would increase their costs.

In other words, while some co-ops' bottom lines are threatened by not having enough customers, others may face problems from having too many customers, particularly ones with health issues.

Aaron Albright, a spokesman for the federal Centers for Medicare and Medicaid Services, said "we're not aware of any immediate financial threat" to any other co-op other than CoOportunity Health in Iowa and Nebraska.

Albright noted that the co-ops "are start-up companies. Any start-up business enters a market with an inherent risk of building a business from the ground up."

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Operators of co-ops and their trade association didn't dispute the financial numbers in the A.M. Best report. But they argued it's still too early to reach conclusions on the financial viability of the co-ops as a group, much less as individual businesses.

"Co-ops were never intended to achieve immediate and uniform financial success," said Kelly Crowe, executive director of the National Alliance of State Health CO-OPs. "Indeed, success will be better measured once they all have several years to operate on the marketplace and enroll members."

"Co-ops, which are all operating under different circumstances and marketplaces, are working closely with CMS and their state departments of insurance to ensure continued financial stability," Crowe said.

"Moving forward, we are confident about the future financial health of the co-ops," said Crowe.

Maine's success story

The co-op in the best financial health is the one in Maine, which is the only one identified by A.M. Best as operating in the black as of the third quarter of 2014.

Maine Community Health Options enrolled 36,000 customers in the state on the federal Obamacare exchange HealthCare.gov in 2014, accounting for a whopping 83 percent of the total marketplace share in Maine, according to co-op CEO Kevin Lewis.

"I think this year we continue to lead in our enrollment," Lewis said. Maine Community Health Options also began selling plans statewide in New Hampshire this year.

"We're pleased with where we are in terms of our goals and objectives, and we've exceeded our membership projections, and we're doing well, obviously, with our claims experience," Lewis said.

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Echoing other co-op advocates, Lewis said the co-ops "offer tremendous value, as we've seen throughout in lowering costs. The competitive pressure that co-ops exert has been evident in every state where co-ops exist."

"I do know our presence has brought down the overall price of coverage," he said.

Before the third quarter, Health Republic Insurance of New York was the only other co-op in the nation other than Maine's to be operating in the black, and had the most Obamacare exchange enrollees of any co-op in the nation, with nearly 140,000 customers.

Michael Fagan, spokesman for Health Republic, said the insurer continues to "maintain solid financial footing" as the co-op "executive leadership has made prudent business decisions along every step of the way, including negotiating lower cost services, diversifying our commercial business lines, and securing affordable rates."

Too early for predictions

Ken Lalime, CEO of Connecticut's co-op, HealthyCT, when asked about the A.M. Best report, said, "I think it's a little too early to be putting predictions on the profitability of start-ups."

HealthyCT is one of the co-ops that increased its debt burden during last year, getting an additional $48.5 million in loans from the Centers for Medicare and Medicaid Services "because we're looking at the future, we're looking to grow."

Grown it has.

HealthyCT went from having just a 3 percent market share on Connecticut's Obamacare exchange last year to what Lalime now says is 20 percent of current exchange-based enrollment in the state for 2015 plans.

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"Which is fabulous," Lalime said. "We're meeting expectations ... we're doing well this year, we're capitalized properly."

"We're maturing as a company, and I think all the [co-op] companies are on that type of path," he said.

No more loans

However, the federal loans that HealthyCT and other co-ops have relied on to start and build their businesses are likely done, for now.

"There is not more money coming out of CMS," Lalime said. "That's what has been stated. Things could change."

Lalime said that losing CMS as a lender "could be" worrisome for some co-ops that still have a need or will need operating capital.

John Morrison, founding president of the trade group NASHCO, said, "it's possible that not all of them will succeed." But he added that that's not unusual when talking about two dozen separate business ventures.

And, "I have absolutely no reason to believe that any other co-op will fail," said Morrison, who participates in weekly conference calls with NASHCO members. "I have not received a single fact that another co-op is in danger of failing."

"People are guardedly optimistic, and they're working very hard and they are very committed to making a difference in the health-care marketplace," he said.

Morrison said that difference includes lower insurance prices in states that have co-ops compared to states that don't. He said the average premium in co-op states, both for this year and last year, is 8.5 percent lower than in states without co-ops.

"That's just been really good for consumers," he said.

And, Morrison said, an actuarial analysis has found that the existence of the co-ops in 2014 saved the U.S. Treasury a total of $1 billion, because the lower prices of premiums in the states they were operating in meant the Treasury had lower costs related to subsidies issued to consumers enrolled in those plans. The value of those subsidies is linked to the retail price of the insurance.