Meritus Health Partners, Arizona’s nonprofit health insurance co-op, announced plans to shut down all operations December 31, 2015. The co-op is joining the ranks of other health insurance co-ops formed under that Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) which have been forced to shut down. Now, more than half of the 24 co-ops originally formed under the ACA are off the market. In the case of Arizona’s failed co-op, 59,000 individuals will need to find a new insurer by December 15, 2015 if they want coverage on January 1, 2016.
Consumer Operated and Oriented Plan (CO-OP) Program
Under Section 1322, the ACA created the Consumer Operated and Oriented Plan (CO-OP) program to “foster the creation of qualified nonprofit health insurance issuers to offer competitive health plans in the individual and small group markets.” The new non-profit health insurers, known as co-ops, are member governed and designed to offer individuals and small businesses affordable and high quality coverage. The program relies on low-interest loans, which are granted to eligible non-profits, to provide for the set-up and maintenance of the insurers. As of January 1, 2014, co-ops offered plans through the Health Insurance Marketplace.
Failure and Politics
However, as of November 3, 2015, more than half of the nonprofit health insurance co-ops formed through the ACA were already off the market for 2016. Michigan’s co-op, Michigan’s Consumers Mutual Insurance, became the 12th of 23 co-ops that opened in 2014 to drop out. Since Michigan’s co-op announced its closing, the Arizona co-op was added to the list of failed non-profit insurers. While Republicans point to the failures as a symptom of the ACA’s broader flaws, Democrats, like Rep. Jim McDermott (D-Wash), told the Washington Post that Republicans “deliberately sabotaged” the insurers by slashing their initial funding from $6 billion to $2.6 billion. Additionally, McDermott said that Republicans “weakened and undermined the co-ops at every turn,” and then, he said, “they point the finger at the administration when they fail.”
Prior to its decision to shut down, the Arizona Department of Insurance suspended Meritus Health Partner’s right to sell new policies or renew current ones and placed the co-op under formal supervision. Federal officials also removed the insurer’s policies from the federal health insurance marketplace. The Arizona Department of Insurance suspended the co-op amidst fears that its financial instability would cause it to fail midway through 2016. According to the Associated Press, Tom Zumtobel, the co-ops CEO, said that the organization sought alternative financial backing but efforts were put to a halt by federal officials. Meritus was started with a $93 million loan. According to Zumtobel, Meritus has about $32 million on hand, including a $4 million deposit the Department of Insurance required when the co-op was placed under supervision. After the insurer finishes paying claims, the co-op expects to have $16 million left to repay its loan.
Co-ops Moving Forward
The innovative attempt at changing the face of health insurance with co-ops has had a quick start and, in many cases, a rapid decline. The support for and opposition to co-ops has been strong both politically and administratively. As more co-ops have begun to fail, the federal and state scrutiny of the programs has become more intense, like in the case of Arizona’s Meritus, where state and federal officials shut down the insurer for fears that it would not be able to maintain coverage throughout the year. Martin Hickey, chief executive of New Mexico’s co-op pointed to the shifting treatment of co-ops, saying, “It’s kind of like the ACA is eating its young.” As a counterpoint, Kevin Counihan, CMS’s chief executive for the ACA marketplaces said of the co-ops, “the reality of this business is, it’s just tough.” Counihan also said, “On balance, the co-ops are working. Are they working uniformly? No.” The questions that remain are whether the remaining co-ops are working well enough to continue providing coverage in the coming years and where consumers who lost coverage from failed co-ops will turn for 2016 coverage.