Arizona health insurance co-op off the marketplace

A low-cost health insurance co-op that covers about one in three Arizonans that have an Affordable Care Act marketplace plan won't be allowed to sell health plans Sunday — the opening day consumers can purchase insurance — after the state of Arizona and the federal government took action against the entity.

The Arizona Department of Insurance said Friday afternoon that Meritus Health Partners/Meritus Mutual Health Partners has been placed into "supervision" and only can continue to serve existing clients until the end of the year. The federal government also suspended Meritus from the Affordable Care Act's federal marketplace, which means the company won't be able to sell health plans via healthcare.gov when the health-care law's three-month enrollment period begins Sunday.

The government decisions will require about 59,000 Arizona residents who are covered by Meritus to switch health-insurance providers to maintain coverage in 2016, state officials said.

The Arizona Department of Insurance, which regulates the non-profit, said the co-op has declined to accept the state's order for supervision. Under the order of supervision, it cannot sign new or renew existing policies.

Meritus CEO Tom Zumtobel said the co-op took steps to strengthen its finances and thought it met the state law's requirements for insurers to remain viable, but it was unable to convince Arizona Department of Insurance's director that the co-op was on solid financial footing.

"This really caught us by surprise," Zumtobel said. "We couldn't get feedback from DOI (Department of Insurance) on what specifically we needed to do."

Meritus becomes the 11th non-profit co-op plan to face regulatory action or close operations. It follows Utah's Arches Health Plan, which disclosed Tuesday that it also would close. Co-ops in Colorado, Kentucky, Louisiana, Nevada, New York, Oregon, South Carolina and Tennessee also have announced plans to close. A co-op that served Iowa and Nebraska closed in February, the first casualty of the health-care law's experimental program.

A total of 23 consumer-run, non-profit health plans were established under the federal health-care law with more than $2 billion in federal loans. The idea was to promote competition in markets where a single or couple of private health insurers held sway, theoretically lowering rates or slowing rate increases for consumers and businesses.

Nearly half of the co-ops have folded, creating a headache for proponents of President Barack Obama's signature health-care law and forcing more than a half-million consumers to pick a new health plan for 2016.

The co-ops that are closing often rank among the least-expensive or second-least-expensive plans in the market they serve, said Cynthia Cox, Kaiser Family Foundation's associate director of health reform and private insurance.

Cox said that the co-op closings will disproportionately affect rural communities, where there are fewer insurance options.

Officials with the Centers for Medicare and Medicaid Services said they are closely monitoring the financial performance of the remaining health co-ops, with calls as often as every week. In some cases, as with Arizona, CMS regulators pressed state health insurance regulators to determine whether Meritus had the financial strength to last through 2016. The Arizona Department of Insurance and Meritus agreed it would be prudent for the insurer to close.

A CMS spokesman said the agency's top priority is to make sure coverage is not disrupted through the end of the year. Those currently enrolled in the plan will be able to switch plans during the open-enrollment period, which runs through the end of January.

Meritus was awarded startup loans of $20.9 million and solvency loans of $72.4 million, according to a General Accountability Office report issue in April. It's unclear how much of those authorized loans that Meritus spent or how much money was paid back.

The Arizona non-profit's first year was a slow one, with fewer than 1,000 customers enrolled in 2014, the first year of the health-care law's enrollment, according to the GAO report.

In late 2014 and 2015, Meritus took aggressive steps to boost enrollment. The co-op agreed to sign up all customers outside of the normal enrollment period. Outside the open enrollment period, health insurers are required to take new customers only if a consumer has a life change, such as a job loss, divorce or newborn.

The co-op also slashed plan prices in 2015 to become the lowest-cost provider in Arizona's largest counties. Enrollment soared to 59,000 for both its health-maintenance organization and preferred-provider plans, according to Arizona Department of Insurance figures.

"It's disappointing that the Meritus CEO and board of directors declined to consent to this order," said Andy Tobin, who was appointed Arizona Department of Insurance director three weeks ago. "However, with open enrollment beginning this weekend and many Meritus policyholders subject to automatic re-enrollment, it was vital that the department step in and protect Arizona citizens."

The rash of recent co-op failures comes after the Centers for Medicare and Medicaid Services announced a health-care law program created to stabilize the individual market. Called a risk corridor, it would be funded at lower levels than many insurers anticipated.

Zumtobel told The Arizona Republic that the state health insurance department this summer had warned Meritus about the possibility of lower risk-corridor payments even before CMS' announcement. That prompted Meritus to seek larger rate increases for 2016 to stabilize the insurer's finances.

Zumtobel said he first learned that the company's standing with state regulators may be in jeopardy after he met with Tobin last week.

Still, the insurer had prices for 2016 that were among the least expensive plans. Of the 10 lowest-priced plans in the marketplace for 2016, Meritus had three of those plans, Arizona Department of Insurance records show.

Consumer advocates said Meritus' customers will need to closely examine their options for health coverage.

"Meritus leaving the marketplace means a significant number of Arizonans will need to find a new plan that offers comparable costs and coverage," said Diane Brown, executive director of Arizona Public Interest Research Group Education Fund, a consumer watchdog organization.