Only three CO-OPs will be operational as of 2021

When the first ACA open enrollment period got underway in the fall of 2013, there were 23 Consumer Operated and Oriented Plans (CO-OPs). But within a few years, just four CO-OPs were still operational, offering plans in five states. That was the case from 2018 through 2020, but one of the four remaining CO-OPs, — New Mexico Health Connections — will close at the end of 2020, leaving only three CO-OPs operational as of 2021:

Community Health Options in Maine

Mountain Health CO-OP (Montana Health CO-OP) in Montana and Idaho

and Common Ground Healthcare Cooperative in Wisconsin

For individual market plans, most of those CO-OPs decreased their average premiums for 2020, or raised them only slightly:

How many people are enrolled in CO-OP plans? In 2019/2020, there were only a little more than 135,000 people enrolled in four CO-OPs. That’s down from more than a million enrollees in 2015, when the CO-OPs were at their peak and most were still operational.

Community Health Options had about 37,000 enrollees (including individual and small group plans; individual market enrollees totaled about 28,000 in 2020).

Mountain Health CO-OP had about 18,200 enrollees in Montana in 2020, and 14,000 in Idaho as of 2019 (plus a low number of small-group enrollees, per SERFF filings MHEC-131927403 and MHEC-131962194).

New Mexico Health Connections had about 19,000 members (all in the individual market) as of 2019. This had dropped to about 14,000 by mid-2020; declining enrollment amid the COVID-19 pandemic is one of the reasons NM Health Connections is closing at the end of 2020.

Common Ground had about 52,000 members in 2019 (about 51,000 in the individual market, plus about 950 in the small group market, according to SERFF filing CGHC-131973379)

What are CO-OPs and how are they different? CO-OPs were created under a provision of the Affordable Care Act (aka Obamacare). The idea for CO-OPs was proposed by Senator Kent Conrad (D-ND) when the original public plan option was jettisoned during the health care reform debate. Lawmakers added the CO-OP provision to the Affordable Care Act to placate Democrats who had pushed for a government-run, Medicare-for-all type of health insurance program.

At the time, progressives who preferred a public option derided CO-OPs as a poor alternative because they can’t utilize the efficiencies of scale that would come with Medicare For All, nor do they have the market clout that a single payer system would have when negotiating reimbursement rates with providers.

But supporters noted that because CO-OPs are neither government agencies nor commercial insurers, they could put patients first, without having to focus on investors or Congressional politics.

Instead of paying shareholders, CO-OP profits are reinvested in the plan to lower premiums or improve benefits (since most of the CO-OPs were not financially sustainable and ended up closing, profits have been few and far between). And customers’ health insurance needs and concerns become a top priority because the CO-OP’s customers/members elect their own board of directors. And a majority of these directors must themselves be members of the CO-OP.

CO-OPs are private, nonprofit, state-licensed health insurance carriers. Their plans can be sold both inside and outside the health insurance exchanges, depending on the state, and can offer individual, small group, and large group plans. But they’re limited to having no more than a third of their policies in the large group market (a more lucrative market than individual or small group). Most of the CO-OPs’ membership has been concentrated in the individual market. New Mexico Health Connections was an exception, as they had more enrollees in their employer-sponsored plans (including large group plans) than in their individual market plans. But New Mexico Health Connections sold their employer-sponsored plans to a new for-profit entity in 2018, leaving the CO-OP with just the individual market segment. And New Mexico Health Connections will close altogether at the end of 2020; its 14,000 individual market enrollees will need to select plans from other insurers for 2021.

Lawmakers had originally planned to provide $10 billion in grants to get the CO-OPs up and running in every state. But insurance industry lobbyists and fiscal conservatives in Congress succeeded in reducing the total to $6 billion, and turning it into loans — with relatively short repayment schedules — instead of grants (and CO-OPs were not permitted to use federal loan money for marketing purposes). Then, during budget negotiations in 2011, those loans were cut by another $2.2 billion. And in 2012, during the fiscal cliff negotiations, CO-OP funding was reduced even further — and applications from 40 prospective CO-OPs were rejected

Ultimately, the Centers for Medicare and Medicaid (CMS) awarded about $2.4 billion in loans to 23 CO-OPs across the country (there were 24 CO-OPs, but Vermont Health CO-OP never became operational. CMS retracted their loan in September 2013 — before the exchanges opened for the first open enrollment — because there were doubts that the program could be viable with Vermont’s impending switch to single-payer healthcare in 2017; ironically, Vermont pulled the plug on their single-payer vision in late 2014).

The CO-OP failures have been due in large part to a combination of premiums that were too low, benefits that were too generous, enrollees who were sicker than anticipated, competition from bigger carriers with larger reserves, the risk corridor shortfall that was announced in the fall of 2015, and the risk adjustment payment announcements that were made in June 2016 (see below for a timeline of the closures).

The Trump Administration’s approach to health care reform — including the expansion of short-term plans and association health plans — and GOP lawmakers’ efforts to repeal the ACA (including their success in repealing the individual mandate penalty after the end of 2018), have further increased uncertainty for insurers, making the situation even more precarious for small insurers like the remaining CO-OPs.

But despite those issues, the four remaining CO-OPs continue to operate successfully. So although the individual market is still a challenging environment, the remaining CO-OPs do seem to have carved a sustainable niche.

Focus on cost savings and reinvested profits

How do CO-OPs increase cost efficiencies?

CMS laid out guidelines for CO-OPs to use “private purchasing councils” through which CO-OP carriers can use collective purchasing power to obtain lower costs on a variety of items and services, including claims administration, accounting, health IT, or reinsurance. Private purchasing councils are allowed to use their collective purchasing power to negotiate rates or network arrangements with providers and health care facilities, as antitrust issues could otherwise arise.

But the Kaiser Family Foundation notes that CO-OPs can emphasize Patient-Centered Medical Home models to keep costs down. (the PCMH model allows physicians to use health information technology and care managers to provide a full spectrum of care that’s coordinated among each patient’s various providers. The goal is to keep patients healthy – and out of the hospital – by using best practices and evidence-based medicine. If PCMH doctors are successful, they qualify for bonuses).

models to keep costs down. (the PCMH model allows physicians to use health information technology and care managers to provide a full spectrum of care that’s coordinated among each patient’s various providers. The goal is to keep patients healthy – and out of the hospital – by using best practices and evidence-based medicine. If PCMH doctors are successful, they qualify for bonuses). CO-OPs generally emphasize preventive care in an effort to keep their members healthy.

A challenge for CO-OPs was developing provider networks. At least 15 of the original CO-OPs were renting networks from other insurers, which added to their administrative expenses. In Maine, Community Health Options (the one profitable CO-OP in 2014, and one of only four CO-OPs still operational in 2020) built its own provider network from the ground up, a move that CEO Kevin Lewis noted as one of the reasons for CHO’s success. CO-OPs also have the option to hire doctors directly, rather than contract with them through provider networks (the upside for the doctors is that the CO-OP then handles the administrative details, and the doctor can focus on healthcare instead).

Where are CO-OPs still selling plans in 2020? There are four CO-OPs that are offering plans in five states in 2020. Although the vast majority of the original CO-OPs have failed, these four have shown signs of overall stability, including rate decreases for some plans in 2019 and/or 2020. But one of the four — New Mexico Health Connections — will cease operations at the end of 2020, leaving only three CO-OPs remaining as of 2021.

MAINE:

Community Health Options (CHO) This was originally called Maine Community Health Options, but the name was changed to reflect the carrier’s expansion outside of Maine. 44,000 people enrolled in coverage through the exchange in 2014, and 83 percent of them selected Community Health Options, making the CO-OP’s first year an amazing success.

CHO expanded into New Hampshire for 2015, fueled by their initial success in 2014 and by a new loan from CMS. During the second open enrollment period, CHO once again dominated the Maine market, securing about 80 percent of the exchange market share. They also enrolled about 5,000 people in New Hampshire. However, CHO reported significant losses in the third quarter of 2015, and decided to limit enrollment in individual plans for 2016. Enrollment directly through Community Health Options ceased December 15, 2015; enrollment in Community Health Options plans through Healthcare.gov ceased December 26.

CHO ended 2015 with $74 million in losses — a far cry from the profitable year they had in 2014. In early 2016, Maine’s Insurance Superintendent proposed putting the CO-OP in receivership and canceling a portion of its plans (about 20,000 members would have been transitioned to other coverage). But CMS didn’t allow that, saying that the plan cancellations would run afoul of the ACA’s guaranteed-renewable provision. Instead, the CO-OP is under increased oversight from the Maine Bureau of Insurance, which puts out monthly reports that detail how the CO-OP is faring relative to its business plan.

CHO is the only remaining CO-OP that received money—as opposed to having to pay out money—under the risk adjustment program for 2015 and again for 2016. For 2017, Community Health Options had an average rate increase of 25.5 percent in Maine, where the bulk of their members lived. They exited New Hampshire entirely at the end of 2016, and reverted to operating solely in Maine, as they did in 2014. They implemented an average rate increase of 15.8 percent for 2018 in the individual market. For 2019, and again for 2020, however, CHO increased average premiums by less than 1 percent each year.

CHO’s total membership was 67,539 at the end of 2016, and had dropped to 44,015 by the first quarter of 2017 (all in Maine, since they’re no longer offering plans in New Hampshire). By September 2018, the CO-OP’s membership stood at 51,583, but it had dropped again, to 37,135, by late 2019 (about three-quarters were in the individual market, the rest were in the group market — mostly small group, but some large group as well).

MONTANA and IDAHO:

Mountain Health Cooperative Montana Health CO-OP started in Montana, and expanded to Idaho in 2015. Then-CEO Jerry Dworak noted in 2015 that the CO-OP didn’t expand too quickly, and maintained substantial reserves; they were not relying as heavily as other CO-OPs on risk corridor payments to shore up their financial position.

Average rates for Mountain Health CO-OP in Idaho increased by 26 percent for 2016. For 2017, Mountain Health CO-OP’s average rate increase was 29 percent in Idaho, and 31 percent in Montana. As of December 22, 2016, the CO-OP ceased enrollments in Montana due to the “large number of new members for 2017.” The enrollment freeze was lifted in July 2017 for off-exchange enrollments; on-exchange enrollments in Montana were expected to become available in the summer of 2017 as well. In both cases, this was ahead of schedule, as the CO-OP had originally expected the lift the enrollment freeze as of November 1, at the start of open enrollment.

In another indication of the CO-OP’s increasing viability, their average proposed rate increase for 2018 was only 4 percent in Montana. This demonstrates that the 31 percent average rate increase for 2017 may have been enough to stabilize the CO-OP and “right-size” the premiums. Ultimately, the average rate increase for 2018 ended up being considerably higher, at 16.6 percent, due to the Trump Administration’s decision to eliminate federal funding for cost-sharing reductions (CSR).

For 2019, the CO-OP implemented an average rate increase of 10.3 percent in Montana and 7 percent in Idaho. And for 2020, their average rates decreased by nearly 12 percent in Montana, and increased by 6 percent in Idaho. And rates in both years would have been lower if not for the Trump Administration’s decisions to expand access to short-term plans and association health plans, and the GOP tax bill provision that eliminated the individual mandate penalty after the end of 2018 (all of these changes ultimately reduce the number of healthy people who purchase coverage in the ACA-compliant market).

The CO-OP’s board of directors announced in June 2018 that Richard Miltenberger would serve as the new CEO of Mountain Health CO-OP. In 2018, the CO-OP had about 25,000 members in Montana, and 24,000 in Idaho. In Montana, the CO-OP had more individual market enrollees than either of the other two insurers that offer plans in the state.

WISCONSIN:

Common Ground Healthcare Cooperative — The CO-OP offers coverage in 20 eastern Wisconsin counties.

After losing money from 2014 through 2017, Common Ground Healthcare posted a positive net income of $2.7 million in the first quarter of 2017.

For 2018, Common Ground’s average rate increase was 63 percent. But it would only have been about 20 percent if the Trump Administration hadn’t eliminated federal funding for cost-sharing reductions. The rate increase for 2018 applied to about 29,000 members who had coverage in the individual market.

But for 2019, the CO-OP’s average premiums decreased by almost 19 percent. And for 2020, they decreased again, by about 9 percent, indicating a much more stable environment than they were facing for 2018.

NEW MEXICO (Closing at the end of 2020):

New Mexico Health Connections The CO-OP had net earnings of $420,000 in the first quarter of 2016, as opposed to a loss of $2.3 million in the first quarter of 2015. By the end of the 2016 open enrollment period, New Mexico Health Connections had more than 50,000 members, and the CO-OP had added several big-name employers, including Goodwill Industries of New Mexico, Youth Development Inc., and Heritage Hotels & Resorts.

NM Health Connections has said that they weren’t counting on significant payments from the risk corridor program in 2015, so the shortage didn’t hurt them as much as it hurt other carriers (NM Health Connections was supposed to receive $4.2 million, and instead got $531,000). New Mexico Health Connections dropped its PPO plans for 2016 in order to focus on plan designs that allow them to better control costs. Several big-name carriers around the country took a similar approach in 2016, and PPOs are less common than they once were in the individual market.

For 2017, New Mexico Health Connections had an average rate increase of 33 percent. Their average rate increase for 2018 was 28.2 percent (much lower than the 84 percent average rate increase they initially filed; the lower rate filing came about once it became clear that other insurers would not be exiting New Mexico’s market and the CO-OP did not have to insulate themselves against a flood of new enrollees).

In 2018, New Mexico Health Connections sold its employer-sponsored market segment to a for-profit entity that is now providing coverage to the employer groups that were previously covered by the CO-OP (that entity also entered the individual market in New Mexico in 2020, coming into direct competition with the CO-OP). New Mexico Health Connections now only offers coverage in the individual market, but will close its doors for good at the end of 2020. The New Mexico Office of the Superintendent of Insurance has published a set of FAQ about the impending CO-OP closure.

The CO-OP had 17,884 members in 2018. And for 2019, New Mexico Health Connections ended up reducing their average premiums by about 7 percent. Enrollment in 2019 stood at 18,689, and rates increased by about 2 percent for 2020. For 2021, NM Health Connections had proposed an average rate increase of nearly 32 percent, but that will not take effect now that the CO-OP has announced they’ll shut down at the end of 2020.



2015 risk adjustment: 9 of 10 CO-OPs owed payments

Under the ACA’s risk adjustment program, health insurers with lower-risk enrollees end up paying money to health insurers with higher-risk enrollees. The idea is to prevent insurers from designing plans that appeal only to healthy enrollees, and to ensure that premiums reflect benefit levels, rather than the overall health of a plan’s enrollees. But CO-OPs found themselves disproportionately having to pay into the risk adjustment program, which hampered their financial progress and resulted in several having to close their doors.

On June 30, 2016, HHS released data on risk adjustment numbers for 2015. Of the 10 CO-OPs that were still operational at that point, nine had to pay into the risk adjustment program for 2015; only one remaining CO-OP – Community Health Options (operating in Maine and New Hampshire at that point) – received a risk adjustment payment. Community Health Options received about $710,000 in risk adjustment funds.

Some of the remaining CO-OPs had begun to be profitable in early 2016 (details below), but their financial situations now had to be considered in conjunction with the fact that the CO-OPs had to pay out the following amounts in risk adjustment payments, making their financial futures even more uncertain (of the nine CO-OPs that owed money in 2016 for the risk adjustment program, six have closed or are facing impending closure; only the CO-OPs listed in bold continue to be fully operational)

Mountain Health CO-OP/Montana Health CO-OP (Idaho and Montana): $481,000

(Idaho and Montana): $481,000 Oregon Health CO-OP (Community Care of Oregon): $914,000 (closed; plans ended July 31, 2016)

Common Ground CO-OP (Wisconsin): $1.9 million

(Wisconsin): $1.9 million Minuteman (operates in Massachusetts and New Hampshire, but risk adjustment outlay was for NH; MA operates its own risk adjustment program): $11 million (Minuteman has filed a lawsuit against CMS in an effort to “invalidate the illegal Risk Adjustment methodology and institute necessary changes immediately.” Minuteman Health is in receivership, and will stop offering coverage at the end of 2017)

New Mexico Health Connections : $14.6 million. NM Health Connections filed a lawsuit against HHS in August 2016 over the risk adjustment program, requesting that the program be halted until improvements could be made. A judge sided with the CO-OP, and the Trump Administration briefly halted all risk adjustment collections and payments in response to the ruling. This would have been destabilizing to the individual markets nationwide if it had continued, but CMS announced in late July 2018 that insurers expecting risk adjustment payments for 2017 would receive them, on schedule, in the fall of 2018.

: $14.6 million. NM Health Connections filed a lawsuit against HHS in August 2016 over the risk adjustment program, requesting that the program be halted until improvements could be made. A judge sided with the CO-OP, and the Trump Administration briefly halted all risk adjustment collections and payments in response to the ruling. This would have been destabilizing to the individual markets nationwide if it had continued, but CMS announced in late July 2018 that insurers expecting risk adjustment payments for 2017 would receive them, on schedule, in the fall of 2018. Healthy CT : $13.4 million (closed; plans ended December 31, 2017)

: $13.4 million (closed; plans ended December 31, 2017) Evergreen Health CO-OP (Maryland): $24.2 million (Evergreen filed a lawsuit in 2016 to block the collection of the risk adjustment payments; a district judge denied the CO-OP’s request, and the CO-OP immediately appealed the decision; Between $2 million and $3 million of the risk adjustment payment was to be withheld by CMS in mid-July from funds owed to the CO-OP for premium subsidies and cost-sharing reductions, and the remainder of the payment had to be remitted by Evergreen by August 15). Evergreen noted that they would have profited between $2 million and $3 million in 2016 if it weren’t for the $24 million they had to pay into the risk adjustment program. As a result of the losses, they began the process of being acquired by private investors and converting to a for-profit entity (this process ultimately didn’t happen fast enough for Evergreen to be able to sell or renew individual plans for 2017; in July 2017 the investors terminated the acquisition, and Maryland regulators ultimately placed Evergreen Health in receivership).

(Maryland): $24.2 million (Evergreen filed a lawsuit in 2016 to block the collection of the risk adjustment payments; a district judge denied the CO-OP’s request, and the CO-OP immediately appealed the decision; Between $2 million and $3 million of the risk adjustment payment was to be withheld by CMS in mid-July from funds owed to the CO-OP for premium subsidies and cost-sharing reductions, and the remainder of the payment had to be remitted by Evergreen by August 15). Evergreen noted that they would have profited between $2 million and $3 million in 2016 if it weren’t for the $24 million they had to pay into the risk adjustment program. As a result of the losses, they began the process of being acquired by private investors and converting to a for-profit entity (this process ultimately didn’t happen fast enough for Evergreen to be able to sell or renew individual plans for 2017; in July 2017 the investors terminated the acquisition, and Maryland regulators ultimately placed Evergreen Health in receivership). Land of Lincoln (Illinois): $31.8 million (the state ordered Land of Lincoln to withhold payment until if and when the CO-OP received the money they were supposed to get in 2015 for the 2014 risk corridors program. That tactic didn’t work however, and in July 2016, Illinois regulators began the process of closing Land of Lincoln Health; the CO-OP was placed in liquidation as of October 1, 2016).

(Illinois): $31.8 million (the state ordered Land of Lincoln to withhold payment until if and when the CO-OP received the money they were supposed to get in 2015 for the 2014 risk corridors program. That tactic didn’t work however, and in July 2016, Illinois regulators began the process of closing Land of Lincoln Health; the CO-OP was placed in liquidation as of October 1, 2016). Freelancer’s CO-OP (Health Republic Insurance of New Jersey): $46.3 million (in September 2016, regulators placed Health Republic in rehabilitation, and the CO-OP stopped selling new plans; the risk adjustment payment — which was much more than they had previously been advised it would be — was cited as a primary reason for the CO-OP’s financial instability).

HHS implemented changes to the risk adjustment program for 2018, to make it more equitable and less burdensome for new, smaller carriers. But risk adjustment has remained a contentious issue. New Mexico Health Connections sued the federal government over the risk adjustment formula, arguing that it disadvantaged smaller, newer insurers (like the CO-OP) and favored larger, more established insurers. A judge agreed with the CO-OP, and ruled that the federal government needed to justify its risk adjustment formula for 2014-2018.

The Trump Administration responded by announcing in July 2018 that all risk adjustment payments and collections, nationwide, would cease for the time being, which caused widespread uncertainty and concern among health insurers and state regulators. But in late July, CMS announced that they would resume payments under the risk adjustment program, and insurers due to receive a total of $5.2 billion in risk adjustment payments for 2017 will receive that money in the timely fashion in the fall of 2018.

2016 risk adjustment: 4 out of 5 remaining CO-OPs once again owed money

On June 30, 2017, HHS published the risk adjustment report for 2016. Maine Community Health Options was once again the only remaining CO-OP to receive funding under the risk adjustment program; they got $9.1 million.

The report also detailed the amount that insurers owe or would receive for 2016 under the ACA’s temporary reinsurance program (2016 was the last year for the reinsurance program). All five of the remaining CO-OPs received money from the 2016 reinsurance program, but in most cases, it was not as much as they had to pay out under the risk adjustment program.

Maine Community Health Options — the only remaining CO-OP receiving funding under the risk adjustment program for 2016 — also received $21 million under the 2016 reinsurance program, which was far more than any of the other CO-OPs received.

Common Ground CO-OP had to pay $3.7 million in risk adjustment (but received $10.5 million in reinsurance)

Mountain Health CO-OP/Montana Health CO-OP had to pay $8.3 million in risk adjustment (but received $2.9 million in reinsurance)

New Mexico Health Connections had to pay $8.9 million in risk adjustment (but received $3 million in reinsurance) NM Health Connections sued the federal government in 2016 over the risk adjustment program, arguing that the system was set up in a way that ultimately ends up taking money from smaller, newer insurers and giving it to larger, more established insurers. A judge sided with the CO-OP, and the Trump Administration responded by briefly suspending payments and collections under the risk adjustment program nationwide.

Minuteman, which closed at the end of 2017, had to pay $25.4 million in risk adjustment for 2016 (but received $3 million in reinsurance). Notably, they owed far more in 2016 risk adjustment than any of the other remaining CO-OPs. They explained in June 2017, in conjunction with their announcement that they would no longer be a CO-OP after 2017 (at that point, they hoped to re-open as a for-profit insurer, but that plan was scrapped when they were unable to raise enough capital to secure a license for 2018), that the amount they had been forced to pay into the risk adjustment program amounted to about a third of the premiums they had collected.

2017 risk adjustment

On July 9, 2018, CMS published the risk adjustment report for 2017, showing which insurers owed money into the program, and which would receive money. Ironically, this came just three days after CMS had announced that they would freeze risk adjustment transfers as a result of the New Mexico court ruling regarding the risk adjustment methodology. But by the end of July, the risk adjustment program had been restarted (with additional justification for the methodology, the comply with the judge’s request), and payments to insurers were expected to be made on schedule, in the fall of 2018.

But once again, CHO was the only CO-OP that will receive funds under the risk adjustment program for 2017. The other three remaining CO-OPs all owed money:

Community Health Options received $10 million from the risk adjustment program.

received $10 million from the risk adjustment program. Common Ground CO-OP had to pay $1.15 million into the risk adjustment program. This was due to their small group plans; they received a small amount of money under the risk adjustment program for their individual market plans, but it was more than offset by the amount they had to pay in the small group market.

had to pay $1.15 million into the risk adjustment program. This was due to their small group plans; they received a small amount of money under the risk adjustment program for their individual market plans, but it was more than offset by the amount they had to pay in the small group market. New Mexico Health Connections had to pay $5.6 million into the risk adjustment program.

had to pay $5.6 million into the risk adjustment program. Mountain Health CO-OP/Montana Health CO-OP had to pay $36.6 million into the risk adjustment program.

2016: New HHS regulations to stabilize CO-OPs, but ultimately too little too late for most CO-OPs

In May 2016, after extensive input from stakeholders, HHS issued new regulations in an effort to help the remaining CO-OPs become financially viable. Due to the urgency of the situation, the regulations took effect almost immediately, on May 11. The new regulations made a variety of changes to make it easier for CO-OPs to seek outside investments and expand their coverage offerings beyond the individual and small group markets:

Prior to 2016, there were relatively strict rules governing the makeup of CO-OP boards. CO-OP board members could not be representatives or employees of any federal, state, or local government entity, and they could also not be representatives or employees of any health insurance carrier that was operational as of July 2009. These rules were established to prevent conflicts of interest among CO-OP board members (for example, an employee of a competing insurance company might have a conflict of interest and might not make decisions solely based on the best interests of the CO-OP). The new regulations relaxed these rules, as HHS had discovered that the rules were too strict, and were preventing well-qualified experts from joining CO-OP boards. The new regulations allow government employees and representatives to be on CO-OP boards as long as they’re not in senior or high-level positions in the government. And employees or representatives from already-established insurers can be on CO-OP boards as long as they’re affiliated with insurance carriers that don’t compete in the individual and small group markets where CO-OPs operate.

The old rules also required all of a CO-OP’s board of directors to be elected by CO-OP members, and required all members of the board of directors to also be members of the CO-OP. The new regulations allow for some leeway here too. Only a majority of the board members must be elected by CO-OP members, and board members are no longer required to be members of the CO-OP. This allows outside entities that are providing loans, investments, and services to the CO-OP to have representatives on the board of directors, and will — in theory — make it easier for CO-OPs to attract new investments. HHS noted that including investor representatives on boards of directors is a common practice in the private sector. The old rules made it difficult for CO-OPs to find willing and qualified individuals to serve on their boards of directors, and the new rules allow them to seek outside experts to provide assistance via being on the board of directors. The CO-OPs are member-driven though, as the majority of board members must still be elected by CO-OP members. New Mexico Health Connections announced in 2016 that they planned to work with Raymond James, a New York based investment firm, to raise “a substantial amount” of funding for New Mexico Health Connections. Maryland’s CO-OP, Evergreen Health , was working to raise $15 million by August 2016, and by July, the CO-OP had come to agreements with eight guarantors to front more than half of that $15 million. But Evergreen Health later opted for the ultimate private investor arrangement, with plans for private investors to acquire the CO-OP in 2017. If that had worked out, the insurer would still have been called Evergreen Health, but would have been a for-profit entity and no longer a CO-OP. Ultimately, the new arrangement didn’t receive federal approval in time to continue to offer coverage for 2017, and Maryland’s Insurance Commissioner announced on December 8 that Evergreen would not sell or renew any individual plans for 2017. They had planned to return to the individual market in 2018, but the private investors terminated the acquisition in July 2017, and Maryland regulators imposed an administrative order that ultimately resulted in the CO-OP entering receivership.

announced in 2016 that they planned to work with Raymond James, a New York based investment firm, to raise “a substantial amount” of funding for New Mexico Health Connections. Maryland’s CO-OP, , was working to raise $15 million by August 2016, and by July, the CO-OP had come to agreements with eight guarantors to front more than half of that $15 million. But Evergreen Health later opted for the ultimate private investor arrangement, with plans for private investors to acquire the CO-OP in 2017. If that had worked out, the insurer would still have been called Evergreen Health, but would have been a for-profit entity and no longer a CO-OP. Ultimately, the new arrangement didn’t receive federal approval in time to continue to offer coverage for 2017, and Maryland’s Insurance Commissioner announced on December 8 that Evergreen would not sell or renew any individual plans for 2017. They had planned to return to the individual market in 2018, but the private investors terminated the acquisition in July 2017, and Maryland regulators imposed an administrative order that ultimately resulted in the CO-OP entering receivership. The ACA requires that at least two-thirds of a CO-OP’s policies must be issued in the individual and small group markets in the state where the CO-OP is licensed. Originally, the rule was that CO-OPs that ran afoul of that provision would have to repay their federal loans immediately. The new regulations allow for more leeway: CO-OPs that aren’t meeting the two-thirds rule don’t necessarily have to repay their loans immediately, but they do have to demonstrate a plan for getting into compliance with the two-thirds rule, and be acting in good faith to achieve that standard (most CO-OPs only operate in the individual and small group markets thus far, but HealthyCT in Connecticut was an exception – they offered large group plans in addition to individual and small group plans. New Mexico Health Connections also had large group enrollments until 2018, when they partnered with a for-profit entity that is now covering their employer groups; New Mexico Health Connections is continuing to provide CO-OP coverage for their individual market enrollees). The new flexibility allows CO-OPs to enter into other markets – including large group, Medicare, Medicaid, and ancillary products such as dental and vision, without having to be overly concerned with running afoul of the two-thirds rule and triggering an immediate payback requirement for federal loans.

Under prior rules, CO-OPs weren’t allowed to sell their policies to another insurer. So when 12 CO-OPs failed by the end of 2015, the only option was to send their members back to the general market – on or off-exchange – to seek new coverage. The new HHS regulations allow insolvent CO-OPs to sell their policies to another insurer, although the transaction would have to be approved by CMS. The idea here was to preserve coverage for existing members if additional CO-OPs fail. But of the ten CO-OPs that were still operational when the new rules were finalized, six have since folded, and all of their members have had to purchase new coverage, as none of the failed CO-OPs have been purchased by other insurers.

Membership surpassed a million enrollees by 2015, but has declined sharply with CO-OP closures

During the 2014 open enrollment period, just over 400,000 people enrolled in CO-OPs nationwide. That climbed to over a million by the end of the 2015 open enrollment period – despite the fact that CoOpportunity (Iowa and Nebraska) stopped selling policies in December 2014, and their once-robust enrollment (120,000 members) had dropped to about 2,000 people by mid-February 2015. While enrollment in private plans through the exchanges increased by 46 percent in 2015 (from 8 million people in the first open enrollment period, to 11.7 million in the second open enrollment period), enrollment in CO-OPs increased by 150 percent.

At the end of 2015, however, more than 500,000 of those enrollees had to switch to a different plan, as 11 of the 22 remaining CO-OPs closed at the end of 2015 (in large part due to the fact that insurers did not receive most of the risk corridor money they were owed for 2014). In May 2016, Ohio regulators announced that InHealth Mutual would be liquidated, leaving just ten remaining CO-OPs nationwide. And only three of them were not subject to enhanced federal oversight as of 2016: New Mexico Health Connections, Mountain Health Cooperative (Montana and Idaho), and Minuteman Health, Inc (Massachusetts and New Hampshire). The other eight CO-OPs still in operation at that point were all under “corrective action plans” from the federal government.

Seven of the eleven CO-OPs that were still operational at the end of 2015 had at least 25,000 enrollees as of mid-2015, which was the minimum number that CMS said was necessary for financial solvency. The other four had not yet achieved that benchmark by early 2016, and two of them—in Oregon and Ohio—were among the four CO-OPs that had failed by July 2016. Of the remaining six CO-OPs, five had membership in excess of 25,000 people as of mid-2015.

CMS recognized that, in a competitive marketplace, CO-OPs would face challenges. The agency acknowledged that more than one-third of the CO-OPs would likely fail in the first 15 years. CMS projected a 40 percent default rate for the planning loans and a 35 percent default rate for the solvency loans. But with only four of 23 CO-OPs still in business as of 2018, the failure rate is 83 percent, after four and a half years of operations.

The remaining CO-OPs had roughly the following enrollment totals as of 2019, including individual and group plans:

Community Health Options: About 37,000 members

Mountain Health CO-OP: About 35,000 members

New Mexico Health Connections: About 19,000 members (this had dropped to about 14,000 by mid-2020)

Common Ground: About 52,000 members

How many CO-OPs have failed? Since 2013, 19 of the original 23 CO-OPs have closed. Another will close at the end of 2020.

A timeline of the CO-OP closures

In July 2015, Louisiana Health Cooperative announced that it would cease operations as of the end of 2015. LHC was the second CO-OP to fail; CoOpportunity, which served Nebraska and Iowa, received liquidation orders from state regulators in February 2015.

At the end of August, the Nevada Health CO-OP announced they would also close at the end of 2015. And in September, New York officials announced that Health Republic of New York, the nation’s largest CO-OP, would begin winding down operations immediately, and that individual Health Republic of NY policies would terminate at the end of 2015.

On October 1, 2015 the federal government notified health insurance carriers across the country that risk corridors payments from 2014 would only amount to 12.6 percent of the total owed to the carriers. The program is budget neutral as a result of the 2015 benefit and payment parameters released by HHS in March 2014. And the “Cromnibus bill” that was passed at the end of 2014 eliminated the possibility of the risk corridors program being anything but budget neutral, despite the fact that HHS had said they would adjust the program as necessary going forward.

But very few carriers had lower-than-expected claims in 2014. So the payments into the risk corridors program were far less than the amount owed to carriers – and the result is that the carriers essentially get an IOU for a total of $2.5 billion that may or may not be recouped with 2015 and 2016 risk corridors funding (risk corridors still have to be budget neutral in 2015 and 2016, so if there’s a shortfall again, carriers would fall even further into the red).

Many health insurance carriers – particularly smaller, newer companies – faced financial difficulties as a result of the risk corridors shortfall. CO-OPs were particularly vulnerable because they were all start-ups and tended to be relatively small. All of the CO-OPs that announced closures in the last quarter of 2015 attributed their failure to the risk corridor payment shortfall.

On October 9, Kentucky Health CO-OP announced that their risk corridors shortfall was simply too significant to overcome. (The CO-OP was supposed to receive $77 million, but was only going to get $9.7 million as a result of the shortfall.) The CO-OP did not offer plans for 2016, and their 2015 policies terminated at the end of the year. About 51,000 CO-OP members in Kentucky had to shop for new coverage for 2016.

And then on October 14, Tennessee regulators announced that Community Health Alliance would also close at the end of the year. CHA stopped enrolling new members in January 2015, but it had planned to sell policies during the 2016 open enrollment period, albeit with a 44.7 percent rate increase. Ultimately, the risk of the CO-OP’s failure in 2016 was too great, and it wound down operations by the end of the year instead.

Two days later, on October 16, Colorado Health OP was decertified from the exchange by the Colorado Division of Insurance, resulting in the CO-OP’s demise; Colorado Health OP’s 80,000 individual members all needed to transition to new carriers for 2016.

Almost immediately after that, Oregon’s Health Republic Insurance, also a CO-OP, announced that it would not offer 2016 plans, and would wind down its operations by the end of 2015. Health Republic had 15,000 members.

On October 22, The South Carolina Department of Insurance announced that Consumers Choice would voluntarily wind down its operations by year-end, and would not sell plans for 2016. Consumers Choice was run by the same CEO – Jerry Burgess – as Community Health Alliance in Tennessee. 67,000 Consumers Choice members had to switch to a new carrier for 2016. The South Carolina Department of Insurance put together a series of FAQs for impacted plan members.

On October 27, the Utah Insurance Department announced that they were placing Arches Health Plan in receivership, and the carrier would wind down operations by the end of the year. Arches Health Plan garnered roughly a quarter of Utah’s exchange market share in 2015, but those enrollees had to switch to a new carrier for 2016.

On October 30, just two days before the start of the 2016 open enrollment period, the Arizona Department of Insurance announced that Meritus would cease selling and renewing coverage, and existing plans would terminate at the end of 2015. Healthcare.gov removed Meritus plans from the exchange website, and current enrollees — who comprised roughly a third of the private plan enrollees in the Arizona exchange at that point — had to obtain new coverage for 2016. Meritus was unique in that they allowed people to enroll off-exchange year-round up until late-summer 2015. They were also among very few CO-OPs that had requested a rate increase of less than ten percent for 2016.

Open enrollment for 2016 coverage began on November 1, 2015, and coverage was still available at that point from the remaining 12 CO-OPs. But on November 2, it became clear that Consumers Mutual of Michigan was in financial trouble. The carrier announced that they would not offer plans in the exchange in 2016, although at that point, there was still a possibility that they would continue to offer plans outside the exchange. But on November 4, they announced that they would wind down their operations by the end of the year, and all 28,000 members would need to find new coverage for 2016.

In May 2016, state regulators in Ohio announced that InHealth Mutual would shut down and that members would have a 60 day special enrollment period to select a new plan.

In July 2016, state regulators in Connecticut announced that HealthyCT would shut down at the end of 2016 (employer groups were able to keep their coverage through the renewal date in 2017, as long as the plan’s renewal date in 2016 was July or earlier).

In July 2016, state regulators in Oregon announced that Oregon Health CO-OP would shut down at the end of July 2016.

In July 2016, state regulators in Illinois announced that they were beginning the process of taking over Land of Lincoln Health and winding down the CO-OP’s operations. A special enrollment period was created for the CO-OP’s 49,000 enrollees.

In September 2016, state regulators in New Jersey placed Health Republic Insurance of New Jersey into rehabilitation, and the CO-OP ceased selling new plans. Health Republic’s existing plans terminated at the end of 2016.

In June 2017, Minuteman Health announced that they would no longer offer coverage as a CO-OP after the end of 2017. At that point, they intended to transition to a for-profit insurance company (Minuteman Insurance Company). However, they were unable to raise enough capital by the August 2017 deadline for securing a license for 2018, and thus did not re-open as a for-profit insurer. Minuteman Health is in receivership, and enrollees needed to obtain new coverage for 2018.

In July 2017, Maryland regulators issued an administrative order blocking Evergreen Health from selling or renewing any plans (they only had group plans in force at that point, having terminated individual market plans at the end of 2016). The order noted that it was expected that the process would culminate in receivership, and the receivership announcement came by the end of July.

The four CO-OPs that were still operational as of 2018 are all still operational in 2020. But New Mexico Health Connections will close at the end of 2020, leaving just three CO-OPs still operational in four states.



CO-OPs’ unique challenges

In July 2015, HHS released financial and enrollment data for the 23 CO-OPs, as of December 2014. The outlook based on the report was not particularly great: all but one of the CO-OPs operated at a loss in 2014, and 13 of the CO-OPs fell far short of their enrollment goals for 2014. The audit called into question the CO-OPs’ ability to repay the loans that they received from the federal government under Obamacare.

The risk corridor shortfall was directly implicated in the failure of CO-OPs in Kentucky, Tennessee, Colorado, Oregon, South Carolina, Utah, Arizona, and Michigan. There is no way around the fact that such a significant financial blow is hard to overcome, particularly for carriers that were new to the market in 2014. Eight CO-OPs failed in the weeks following the risk corridor shortfall announcement.

Those eight CO-OPs were in serious financial jeopardy as a result of the risk corridor shortfall and other factors, and state Insurance Commissioners made the difficult decision to shut them down prior to the start of open enrollment, or shortly thereafter. It’s much less complicated to wind down operations in an orderly fashion in the last couple months of a year than it is to have a carrier become financially insolvent mid-year.

That, coupled with the late announcement regarding the risk corridors shortfall, explains the rash of CO-OP failures announced in late 2015. It should be noted that it was not just CO-OPs feeling the pain from the risk corridor shortfall; in Wisconsin, Anthem exited the exchange market in three counties and scaled back operations in 34 other counties for 2016, partially as a result of the risk corridor shortfall. And in Wyoming, WINhealth exited the individual market because of the risk corridor shortfall; in Alaska and Oregon, Moda nearly exited the market for 2016, due in large part to the risk corridor shortfall (Moda ultimately left Alaska’s market at the end of 2016, in order to focus fully on the Oregon market).

But with 12 out of 23 CO-OPs going under in 2015, it wasn’t surprising that the mood in late 2015 was relatively pessimistic regarding the CO-OP model. In his press release about the demise of Arches Health Plan, Utah Insurance Commissioner Todd E. Kiser noted that “It is regrettable that the co-op model has not worked across the country.” That didn’t bode well for the remaining 11 CO-OPs, and ultimately only four of them are still operational in 2018.

All 11 of the remaining CO-OPs suffered losses in 2015, amounting to a total of about $400 million (Evergreen lost the least, at $10.8 million; Land of Lincoln lost the most, at $90.8 million). The bulk of the losses were in the fourth quarter, indicating that consumers try to get as much value as possible from their coverage before the end of the plan year.

The fact that lawmakers decided at the end of 2014 to retroactively require the risk corridors program to be budget-neutral was a significant blow to the CO-OPs. The CO-OPs – along with the rest of the carriers – had set their premiums for 2014 (and by that time, for 2015 as well) with the expectation that risk corridors payments would mitigate losses if they experienced higher-than-expected claims.

Clearly, that did not pan out, and it certainly put the CO-OPs in a tough spot. To clarify, HHS said in 2013 that the risk corridor program would NOT be budget-neutral, and that federal funds would be used to make up any shortfalls; carriers set their rates for 2014 based on that.

But then in 2014, HHS announced in 2014 that they had made several adjustments to the risk corridor program, and that they projected “that these changes, in combination with the changes to the reinsurance program finalized in this rule, will result in net payments that are budget neutral in 2014. We intend to implement this program in a budget neutral manner, and may make future adjustments, either upward or downward to this program (for example, as discussed below, we may modify the ceiling on allowable administrative costs) to the extent necessary to achieve this goal.” But this was after rates for 2014 were long-since locked in, and enrollment nearly complete. At the end of 2014, congress passed the Cromnibus Bill, requiring risk corridors to be budget neutral, with no wiggle room for HHS.

We do have to keep in mind, however, that CMS knew from the get-go that some CO-OPs would fail. They expected at least a third of them to fail in the first 15 years, and that was long before the risk corridors program was retroactively changed to be budget neutral.



Will the few remaining CO-OPs survive?

It’s too soon to tell. In many states, the CO-OPs started out in a David and Goliath situation, competing with carriers that had dominated the health insurance landscape for years. Premiums that carriers — including CO-OPs — set for 2014 and 2015 were little more than educated guesses from actuaries, since there was very little in the way of actual claims data on which to rely (there was no data at all when the 2014 rates were being set, and only a couple months of early data available when 2015 rates were being set). Once the CO-OPs had more than a year of claims history in the books, they were able to be more accurate in pricing their policies.

But the uncertainty that the Trump administration and GOP lawmakers created for the insurance markets resulted in spiking premiums for 2017 and 2018 (not just for CO-OPs, but for the majority of insurers in most states). That uncertainty continued in 2019, with the Trump administration finalizing rules to expand access to short-term plans and association health plans, and GOP lawmakers’ tax bill that repealed the individual mandate penalty after the end of 2018. But despite all of that, the remaining CO-OPs have had fairly stable pricing in recent years, with several rate decreases in 2019 and 2020, and some modest increases.

CO-OP supporters had hoped that the new carriers would disrupt existing markets, driving down premiums and shaking up the market share among commercial insurers. Although most of the CO-OPs struggled financially, average premiums market-wide were lower in both 2014 and 2015 in states that had CO-OPs than in states without CO-OPs. A GAO report found that average CO-OP premiums in 2014 and 2015 in most states tended to be lower than the average premiums across all carriers in those states. And enrollment in CO-OPs increased at a much faster pace than overall enrollment growth (across all carriers) from 2014 to 2015.

CMS acknowledged from the start that not all of the CO-OPs would be likely to succeed — just as a crop of new for-profit health insurance carriers wouldn’t all be expected to succeed. The four remaining CO-OPs are all in their seventh year of providing coverage as of 2020, demonstrating their staying power. But only three of them will continue to operate as of 2021, as New Mexico’s CO-OP will close at the end of 2020.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.