Maryland CO-OP barred from enrollment pending for-profit conversion decision

Evergreen Health, a Maryland consumer-operated and oriented plan (CO-OP), came up with a plan to avoid folding like the majority of the health insurance CO-OPs established under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), but that plan has hit a major logistical snag as it is currently banned from selling individual plans. The timing of its removal from the individual market could not be worse, as consumers must be enrolled in a plan by December 15 to ensure coverage starting on January 1, 2017.

Evergreen hoped to convert to for-profit insurer status through private investor acquisition, allowing it to gain enough funding to continue operations. Unfortunately, the plan requires CMS approval, which appears not to be coming through in time to allow 2017 sales. Maryland Insurance Commissioner Al Redmer, Jr had no choice but to pull the plug on Evergreen’s individual plan sales, announced December 8, but those enrolled in Evergreen plans now only have a matter of days to pick a new plan in order to maintain continuous coverage. Redmer admitted that he probably waited until “past the last minute” to announce the ban on sales.

Evergreen had about 6,000 enrollees through the state marketplace for the 2016 plan year, while an additional 3,000 people bought individual plans directly  from Evergreen. Most marketplace customers will be automatically switched to similar coverage under CareFirst BlueCross BlueShield or Kaiser Permanente, but may choose alternate plans. Cigna is the third insurer offering plans on the state’s exchange. Evergreen will continue to participate in the small and large group markets in Maryland.

This delay is yet another chapter in Evergreen’s story of issues with CMS. Evergreen expected to report a profit for 2016, a feat for a co-op, but was hit with a $24.2 million risk adjustment payment bill from CMS. In June 2016, Evergreen filed suit against CMS in an attempt to prevent collection of what amounted to 26 percent of its 2015 premium revenue. Evergreen took the position that the risk adjustment program, which reallocates money from insurers covering healthier patients to those covering the sickest population, favors larger insurers and puts smaller companies at risk. The U.S. Court of Appeals for the Fourth Circuit ruled that Evergreen was required to make its payment while the lawsuit was pending.

Evergreen CEO Dr. Peter Beilenson said that he expects an agreement to be finalized with CMS in the coming days. This agreement is likely to require Evergreen to pay part of its $65 million startup loan back to CMS in order to operate without such close agency oversight. Next, Evergreen would proceed through a long state process in order to facilitate the conversion, which Beilenson hopes to finalize in April or May 2017. In the meantime, Beilenson expects to grow the number of members in small and large employer groups from 29,000 to 40,000.

Northeast co-op in precarious financial position after offering big salaries

Community Health Options (CHO), a health co-operative that serves customers in Maine and New Hampshire, is the latest co-op under intense scrutiny after experiencing significant financial difficulties. It was the only co-op on the health insurance marketplaces to show a profit in 2014, but its good fortune disappeared last year when CHO experienced a $31 million loss. A number of co-ops shut down in 2015, demonstrating the difficulty of executing the nonprofit health insurance model. CHO, however, may have only itself to blame after offering huge pay bumps to executives.

Why do co-ops fail?

The co-ops, also known as Consumer Oriented and Operated Plans, were supported by the administration as an alternative to private health insurers. They received funding through the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), which Nonprofit Quarterly believed led to many restrictions, such as marketing and advertising, that hampered the organizations’ ability to operate effectively in the market.

Other funding issues compounded the problem. For example, although the Kentucky Health Cooperative outperformed some state exchange competitors and had healthy enrollment, receiving a fraction of the expected risk corridor payment from CMS meant no more business as usual, according to Interim Kentucky Health Cooperative CEO Glenn Jennings. Risk corridor payments were created under the ACA to help insurers handle the costs of new enrollees with long-unmet health needs, who would likely cost more to cover. Insurers were to receive a payment if their operating losses were excessive. Kentucky Health Cooperative sought a $77 million payment, but CMS only covered $9.7 million. The co-op was unable to continue, with the closing announced in October 2015.

Kentucky’s co-op was not the only one hit. As of November 2015, a dozen co-ops had closed or had announced that they would not offer plans in the future. After Kentucky made the announcement, Tennesse’s Community Health Alliance followed suit. ColoradoHealthOp was next decertified from the exchange. In the same month, Oregon’s Health Republic Insurance, South Carolina’s Consumers Choice, Utah’s Arches Health Plan, and Arizona’s Meritus announced that they would cease operations. Consumers Mutual of Michigan held off until November 2 to announce that it was leaving the exchange, and two days later decided to wind down completely.

A big potential blow to Maine, New Hampshire

CHO is an important exchange presence in Maine and New Hampshire. The co-op is the single largest provider of individual health plans in Maine, with 71,500 members. New Hampshire offers a much smaller number of customers, at 12,700, but the co-op is only one of five companies in that state of offer individual ACA plans. It experienced a $31 million loss in December after being the only profitable co-op on the exchanges in 2014. CHO stopped taking new customers in December, and the Maine Bureau of Insurance is going to closely monitor performance on a monthly basis.

CHO had higher enrollment as well as higher claims costs than expected, ostensibly due to the many policyholders that were previously uninsured and had unmet medical needs. Maine customers are projected to see a large increase in premiums in the future to offset these costs. However, claims are not the only reason that the company’s financials were off in last year. Top executives saw their salaries more than doubled in the co-op’s first two years. For example, the combined incomes of the Chief Executive Officer (CEO) and Chief Operating Officer (COO) went from $311,642 to $715,819 between 2012 and 2014. Officials claimed that the CEO initiated a 10 percent reduction in his own salary and that the co-op has cut administrative expenses by $11 million. The CEO has expressed concern that publicizing pay cuts for executives will cause him to lose employees.

Although the company is setting aside $43 million to cover potential losses in 2016, this may not be enough. If the state of Maine determines that the co-op will be unable to properly serve its customers and forces CHO’s closure, consumers will be able to select new coverage under a special enrollment period.