Recent closures demonstrate weakness in ACA CO-OP program

Background

The Affordable Care Act (ACA) was signed into law five and a half years ago, dramatically changing health insurance regulations and creating a system of insurance exchanges where consumers and small businesses could shop for health insurance coverage. Since the law’s enactment, its opponents have filed dozens of lawsuits, passed legislation and applied political pressure to overturn or repeal all or parts of the ACA. Despite these challenges, the law remains largely intact, surviving a presidential election and multiple Supreme Court decisions.

While the ACA continues to be vulnerable to outside factors such as the 2016 presidential election, one aspect of the law, the Consumer Operated and Oriented Plan (CO-OP) program appears to be suffering from its own internal weaknesses in design and implementation.

The CO-OP program was designed to provide competition to the private insurance companies who would offer health insurance plans on the exchanges. CO-OPs were to be new, non-profit, member-driven health insurance plans intended to promote patient care, quality and choice.

Beginning in 2013, 23 CO-OPs received start-up financing from the federal government to operate on the exchanges and began offering coverage on January 1, 2014. By the end of 2015, the second year on the exchanges, at least 10 of these CO-OPs will have shut down. Some of these CO-OPs enjoyed high enrollment and market penetration. To date, the 10 closures represent approximately 650,000 health insurance enrollees.

CO-OPs have failed for a variety of reasons, including: pricing uncertainty with respect to a new market; expensive enrollees, many of whom had pent up demand for health care services; federal and state regulations that left CO-OPs unable to raise additional capital; and a federal risk corridor system that was supposed to support insurers that took on higher risk enrollees but wound up paying less than 13 cents on the dollar on the funding it had promised.

The failure of more than 40 percent of the CO-OPs within the first two years is creating a number of challenges:

Reduced choice. With each CO-OP that is shut down, one less insurer will be providing coverage options to individuals and small businesses.

Coverage disruptions. Approximately 650,000 enrollees will have to choose a new health plan that may not provide the same coverage or provider network.

Political attacks. The recent CO-OP closures are likely to add new fuel to the anti-ACA fire.

No CO-OP failure is the same and many of the challenges facing CO-OPs also are experienced by well-established for-profit health insurers. Starting up a new health insurance operation from scratch is extremely difficult, particularly without the ability to raise private capital or financing. The CO-OPs themselves and other pro-ACA stakeholders have also levied some blame on the Obama Administration and the Centers for Medicare & Medicaid Services (CMS) and its management of the risk corridors program. Whatever the causes, the difficulties in the ACA CO-OP program are likely to generate turmoil in the health insurance marketplace and in Washington for some time to come.

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