Editor's note: Story updated on Oct. 22 to add that South Carolina's CO-OP, Consumers' Choice Health Insurance Company, announced it is closing down at the end of the year.

The future of state CO-OPs remains murky after many of the non-profits created by the Affordable Care Act have already shut down — creating challenges for brokers in states that lost their CO-OP and raising questions over the solvency of the remaining ones.

Since this summer, nine CO-OPs have closed for good, with four announcing their closure in the last two weeks and possibly one more expected to announce its closure before Nov. 1, when 2016 open enrollment on the public exchanges begins, those in the industry say. The year began with 23 CO-OPs and there are challenges ahead for the 14 remaining CO-OPs, industry insiders say. 

The biggest hurdle in the future relies on a CMS decision, Peter Beilenson, founder and CEO of Evergreen Health, a Baltimore-based CO-OP, says. Currently, the Centers for Medicare and Medicaid Services forbids CO-OPs from accepting outside capital under loan agreements forged when the CO-OPs first began. However, those loans are no longer given.

Also see: More CO-OPs likely to cease operations

“As you grow, you need solvency money,” Beilenson says. “If this is a new free market entrant — as Republicans and Democrats alike would like to see — then you have to make capital accessible. Right now, it is virtually impossible.”

“If you want us to grow and be successful, you have got to allow us to get additional capital,” he adds. “That’s why we are in discussions with CMS … and a lot of pressure is being put on CMS.”

The main reason so many CO-OPs have failed so far is as a result of CMS paying 12.6 cents on the dollar in risk corridor reimbursements —  a surprise to the entire insurer community, says Beilenson. “CMS consistently said in conference call after conference call that there would be at least a substantial portion, if not all, of the risk corridor [money] coming this year,” he says. “No one ever thought it would be 12 cents on the dollar.”

Also see: CO-OP model under scrutiny with latest failure

The lower risk corridor payments were “another sign that the so-called 3Rs (risk corridors, reinsurance, and risk adjustment) are not working as the Affordable Care Act envisioned,” Kelly Crowe, CEO of the National Association of State Health CO-OPs, a Washington-based coalition of state CO-OPs, said in a statement when the reimbursement rates were announced Oct. 1. “CO-OPs and most new entrants were … hit hard in risk adjustment payments, even though the populations they serve were often very high-risk.”

The failure of nearly one-third of CO-OPs “reflects a combination of factors: low pricing and higher utilization than expected against those prices; inability to leverage competitive prices from providers; greater than anticipated losses from risk adjustment; and most recently and acutely, much less payment than expected from risk corridors,” explains Katherine Hempstead, a director at the Robert Wood Johnson Foundation in Princeton, N.J.

In one respect, CO-OPs have become a “political football,” Hempstead says. “In some ways, CO-OPs have gotten big advantages, and in other ways they are fighting with one hand tied behind their back,” she says of their efforts to be allowed to raise capital.  “There is lingering resentment from other carriers. ... [CO-OPs] will need to fight hard for any future concessions and should not necessarily expect any success.”

The future of Evergreen Health is dependent on accessing capital, and Beilenson is “quite confident” CMS will allow his CO-OP to access capital. CMS did not respond to questions about the issue. 

In the short-term, Evergreen Health is not having solvency problems and has 700% risk-based capital, a measure of solvency, he adds.

Issues for brokers

Meanwhile, brokers with customers on shuttered CO-OPs, like Colorado’s HealthOP, are scrambling to adjust. “On a universal scale, it really is not a positive thing because another one bites the dust,” says Steve Roper, president of brokerage Roper Insurance and Financial Services in Englewood, Colo. “There are fewer and fewer choices for consumers that are out there.”

Also see: States with the least competitive large-group health insurance markets

Brokers in Colorado now must find new coverage for the 70,000 Colorado HealthOP members. “All those people have to migrate some place and we [brokers] have to help find a place,” Roper says.

Speaking about the closure of Tennessee’s CO-OP, Community Health Alliance, Nelson Griswold, president at brokerage consultancy Bottom Line Solutions in Nashville and an EBA columnist, says the “failure reduces choice on the public exchange … and creates inconvenience and disruption for the 27,000 who own a CHA plan.”

These closures all lead to narrowed choice for consumers, both Roper and Griswold say. “Now there are approximately four [health plans on the Colorado exchange],” Roper explains. “[We] used to have a large selection, now it is really narrowed. As Henry Ford said, ‘You can have any color you want, as long as it is black.’”

“It is getting to that point now with health plan selection,” Roper, president-elect of the Metro Denver Association of Health Underwriters, adds. “It is becoming more and more difficult. … [It] provides unique challenges to get your clients covered.”

Despite the closures, CMS says that it will work to make sure consumers have access to affordable coverage. “As CO-OPs across the country continuously review their financial and operational positions heading into the next open enrollment period, we will work closely with state departments of insurance and CO-OPs to provide the best possible outcome for the consumer,” CMS spokesperson Aaron Albright said when two CO-OPs closed last week. “If a CO-OP has solvency issues, and we cannot rule out that others may this year, we will work with the states so that consumers have affordable options on the Marketplace.”

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