What mantra will you adopt in setting up your business? Will you adopt the “profits over people” in the incredibly competitive health insurance market? Or, will you take the road less travelled and adopt the “people before profits” mantra? Several Consumer Oriented and Operated (CO-OPs) health insurance companies set up their businesses with the “people before profits” mantra as the Affordable Care Act became the health law of the land.
It was quite the healthcare experiment. The federal government loaned billions to fledgling health insurance companies who placed the interests of their members first. These CO-OPs–in the true spirit of a co-operative business–sought out to provide low-cost health insurance to Americans in an attempt to compete with top-of-mind health insurers such as Blue Cross, Cigna, and Humana.
Twenty-three CO-OPs set up shop to offer other health coverage options to more than 1 Million Americans . Now, only 7 CO-OPs remain. Three CO-Ops–HealthyCT, Oregon’s Health CO-OP, and Land of Lincoln–announced their decisions to shut their doors in the past two weeks.
Land of Lincoln announced it would wind down operations on Wednesday.
Land of Lincoln: Why the Illinois CO-OP Closed Its Doors
Three years ago, Land of Lincoln opened up its doors to residents of the State of Illinois. In a competitive market with 10 carriers in 2016, Land of Lincoln was able to enroll 49,000 people in its health plans.
The Health Insurance Marketplace is dominated by Blue Cross Blue Shield plans in Illinois. This goliath of a health insurer managed to capture 83 percent of the Health Insurance Marketplace in the state in 2015. In the same year, Land of Lincoln’s Health Insurance Marketplace enrollments equated to a 6 percent market share of Illinois ACA enrollments.
Yes, Blue Cross clearly beat out all of its competitors by a mile in 2015, but it was quite evident that Land of Lincoln was making waves in a competitive health insurance Marketplace.
At least it seemed that way…
Land of Lincoln reported losses of $90 million in 2015. The Risk Corridors Program offered many CO-OPs promises of a 100 percent reimbursement to counter potential startup losses for the CO-OPs. The the federal government decided fund way less of the losses post hoc.
Land of Lincoln joined a class action lawsuit to recover more than $70 million in Risk Corridor Payments to offset some of their losses.
Then the federal government hit Land of Lincoln with a $31.8 Million Risk Adjustments bill.This is one of the three programs designed to help Marketplace health insurers stay afloat. Health Insurers with high populations of healthy clientele pay into a pool, and the money from the pool goes to pad the losses of health insurers attracting sicker clientele.
With unsurmountable losses on hand, the financially troubled CO-OP received an order from Illinois Department of Insurance Chair, Anne Melissa Downing, not to make the Risk Adjustments payment.
The company will continue to operate under the supervision of Downing, but 49,000 subscribers must search for other health insurance options in the coming months.
This closure does have a bright side. The nearly 50 thousand members of Land of Lincoln will have at least a few months to search for other health plans. Members of one CO-OP in Oregon weren’t so lucky…
Oregon’s Health CO-OP’s Abrupt End
As of July 31st, 23,000 residents of Oregon must search for other health plans. This is because Oregon’s Health CO-OP is liquidating.
Like its contemporary, Land of Lincoln, Oregon’s health CO-OP received a bill from the Risk Adjustment program to the tune of $900,000.
The news comes comes as Oregon Health CO-OP reported losses of $18.4 million in 2015. The co-operative was expecting a payment of $5 million from the Risk Corridors program. Even if the company received its Risk Corridors payment, it would not have been able to offset the losses incurred in 2015.
Oregon’s Health Co-Op follows one other Oregon CO-OP–Health Republic–in its decision to wind down operations. The failure of Oregon’s Health CO-OP was preceeded by the closure of one other CO-OP approximately 3,000 miles away.
Rounding Out the Latest CO-OP Closure
It has been an unfortunate fortnight in the life of CO-OPs. Three days before Oregon’s Health CO-OP shuttered their doors, HealthyCT–a Connecticut CO-OP with a combined 40,000 customers–was forced to stop taking on customers.
All three CO-OPs are the result of a healthcare experiment gone south. The member-owned companies opened their doors to provide coverage to members at-cost. Rather than other big-name insurers–such as Human or Cigna–the company answered to members rather than shareholders. Since the members owned the company, all profits would be shared among members resulting in lower costs.
CO-OPs cannot serve the interests of their members when they lose millions. It doesn’t help when the federal government only reimburses a portion of their previous commitment.
Insurers participating in the Health Insurance Marketplace all shared their profits. The Risk Adjustment program helped health insurers stay afloat while taking on more sickly clientele. The three recent failed CO-OPs were known for having healthy clientele.
Nails seal coffins. The Risk Adjustments payment sealed the fate of three Obamacare CO-OPs.
Philip Strang is a health insurance agent with American Exchange. When he is not enrolling families into health plans, he likes to write about the Affordable Care Act, or Obamacare.