Risk Corridor debacle claims *another* victim: Colorado HealthOP becomes 7th to be dissolved

As I noted in the update to my post on the "Transitional Policy" decision a few days ago, the ACA's CO-OP program had a lot going against it from the get-go:

The program has been under siege from the start, including from the insurance industry. Before the law’s passage, government grants to help them get going were switched to loans. None of that money could go for advertising — a wounding rule for new insurers that needed to attract customers. Moreover, the amount available was cut from $10 billion to $6 billion and then later, as part of the administration’s budget deals with congressional Republicans, to $2.4 billion. Federal health officials abandoned plans for a co-op in every state.

So, let's see here: You're trying to create start-ups to enter an existing, mature market which is already dominated by major, behemoth-sized competitors which have almost unlimited funds. Naturally it makes total sense to a) make the seed money a loan with a tight payback time table; b) prevent them from advertising in a saturated market; and c) slash their budget by 75%.

In spite of all of this, and even in spite of any impact from the decision to allow relatively healthy, low-risk enrollees to stay on transitional policies (which the CO-OPs had none of, since they were brand-new) through their competitors, 23 out of 24 of the CO-OPs did manage to survive the first full year (CoOportunity of Iowa/Nebraska didn't even make it that far), and a few of them (Community Health Options of Maine and New Hampshire, as well as (last I heard) Consumers' Choice Health Plan of South Carolina) actually do quite well the first year.

And then...disaster:

Several causes underlie the 2014 funding shortfall, and these factors will continue to have implications for 2015 and 2016 receivables.

The risk corridor program was designed as a two-sided program requiring insurers with better-than-expected financial results to pay the federal government a portion of their earnings, while at the same time requiring the federal government to reimburse a portion of losses to insurers with worse-than-expected financial results. The program was not originally required to be budget neutral. In other words, payments out of the program could be greater than payments in.

That started to change in 2014, well after premium rates were set, when federal regulators began to talk about budget neutrality. This concept became official with the Cromnibus bill passed by Congress in late 2014. That bill required that 2014 risk corridor receivables paid in 2015 be funded through payables into the program from other insurers. Even before the 2014 funding shortfall was officially announced on October 1, 2015, many industry analysts foresaw that program receivables would far outstrip payables.

Again: Just like the "Transitional Plan" decision--which was announced in November 2013, after all of the insurance carriers (including the brand-new, fledgling CO-OPs) had already set their rates for 2014--the Risk Corridor funding was essentially kneecapped in December 2014, again, after all of the carriers had locked in their 2015 rates, meaning they couldn't adjust to compensate for another full year. The only hope at that point was to pray that incoming funds

Cut to this fall, when the HHS Dept. announced that carriers which lost money in 2014 would only receive 12% of the money they were owed, and the fallout became inevitable: At least three ACA CO-OPs have now collapsed specifically as a result of the Risk Corridor mess (as well as at least one private corrier, which isn't going belly up but is pulling completely out of the individual market in Wyoming):

• Kentucky Health Cooperative
• Tennessee: Community Health Alliance
• Wyoming: WINhealth (private carrier)
• and just announced a couple of hours ago...

Dear Member,

It is with a heavy heart that I write to you today. This morning, the Colorado Division of Insurance (DOI) announced Colorado HealthOP will not be selling plans through the Connect for Health Colorado marketplace.

Please be assured that, as a Colorado HealthOP member, your coverage will remain in effect through December 31, 2015, so long as you continue to pay premiums. In two weeks, on November 1, 2015, the Connect for Health Colorado marketplace will open and you will have the opportunity to find another health insurance provider that will begin coverage for you on January 1, 2016.

Needless to say, we are astonished and disappointed by the DOI’s decision. We believe it is both irresponsible and premature.

Colorado HealthOP is a profitable start-up insurance company that is in a strong financial position and, for two years, has served the critical needs of Coloradans like you by enhancing competition in the Colorado insurance market, driving down prices in the state health insurance marketplace and offering new, innovative choices to our more than 80,000 members throughout Colorado.

By choosing this course of action, the DOI has let local and national politics hurt Coloradans’ access to low-cost healthcare options and assessed Colorado taxpayers with significant avoidable costs. You can learn more about the background on this decision here.

For this reason, Colorado HealthOP will continue our fight, pursuing all possible remedies, to serve our members during this transition. To ensure the CO-OP’s values are preserved and not eclipsed by financial interests, Colorado HealthOP’s Board of Directors demands that the state allow a Board-appointed independent consumer protection ombudsman to assist and shepherd our members through the shut down transition in an equitable manner. This includes the third-party review of all claim denials.

I would like to thank each and every one of you for believing in the CO-OP model and taking part in our mission to make healthcare more accessible, affordable and equitable for all Coloradans. It has truly been a pleasure to serve you.

Thank you for choosing us,

Julia Hutchins
CEO
Colorado HealthOP

However, there's a twist this time: While Colorado HealthOP's situation shares some similarities to the other CO-OPs which have failed due to the Risk Corridor mess, there are a couple of major differences as well:

• First of all, they've been very publicly and assertively fighting to survive, calling out Congress for reneging on the Risk Corridor reimbursement they were promised, not just on behalf of themselves but for other insurance carriers (including private companies) which got screwed by this decision:

 

FEDS FAILING AMERICANS ON HEALTHCARE: WHAT YOU NEED TO KNOW

Health Plans Across the Country Owed Billions by Feds
Feds Say They’ll Only Pay a Fraction of What’s Owed, Jeopardizing the Stability of Smaller, Regional Plans

On Oct. 1, the Feds informed health insurance plans across the country they would not be receiving billions of dollars owed to them this year.

Colorado HealthOP and our members are owed $10 million for helping more people get health insurance coverage. We took on big risks by enrolling and caring for many previously uninsured people with significant health care needs. Now we’re the ones left holding the bag.

We’re fighting for our members and are here to help explain what’s going on, make sense of the situation, and let you know how can help hold the Feds accountable!

• Secondly, and more shockingly, just last night they had announced that they had lined up 3 different funding sources to resolve their funding issue:

Colorado HealthOP is excited to host over 200 members for our Annual Member Meeting in Denver tonight. We’re thrilled to report the CO-OP is exceeding budget projections and is on track to start paying down our federal loans.

We also have three viable financing options to ensure we have the capital reserves to meet our regulatory requirements. One option includes reinsurance financing. Another is receiving capital support from another successful CO-OP. And finally, we are talking with a private investor.

We’re working hard to ensure that we’re here to stay.

That was posted yesterday evening.

Less than 14 hours later, the Colorado Division of Insurance decided to pull the plug on them anyway:

We offered 3 viable financing options to the DOI earlier this week, which makes today's decision disappointing. https://t.co/6COOuDZNG2

— Colorado HealthOP (@COHealthOP) October 16, 2015

Here's the CO Division of Insurance's response:

Division of Insurance moves to protect Colorado consumers, takes action against HealthOP
Colorado Health Insurance Cooperative not available for 2016

DENVER (Oct. 16, 2015) – Today, the Colorado Division of Insurance (DOI), part of the Department of Regulatory Agencies (DORA), took action against the Colorado Health Insurance Cooperative, more commonly known as the Colorado HealthOP, preventing it from selling insurance for 2016 on the state’s health exchange, Connect for Health Colorado. Colorado consumers will not be able to buy new HealthOP coverage or renew existing plans for 2016, for individuals or small groups, on Connect for Health Colorado. This move comes in time to ensure that HealthOP members can enroll in new plans during the upcoming open enrollment without a disruption in coverage.

DOI took this action as the financial viability of the HealthOP came into question after learning it would receive considerably less money than expected from a federal, risk-based reimbursement program know as “risk corridor.” Earlier this month, the Centers for Medicaid and Medicare (CMS), announced it would only reimburse the nation’s health insurers 12.6% of what they were entitled under the program - only $362 million out of $2.9 billion promised. Colorado HealthOP was expecting around $16.2 million this year from the risk corridor payments, but instead will only receive about $2 million.

Because of the shortfall in funds, the HealthOP does not meet the State’s minimum capital and surplus requirements. The State requires insurance companies to maintain a certain level of capital and surplus to act as a rainy day fund should the company have a number of very sick people with very high cost claims. Without enough money in that rainy day fund, a company would not be able to pay the claims for its members.

DOI has had the HealthOP under supervision since February, during which time it continued to meet the capital and surplus requirements. However, not receiving the risk corridor payment means the Colorado HealthOP's rainy day fund will be completely wiped out, and is in fact expected to be in the negative by $34 million by the end of the year.

“Our decision is a direct result of this shortfall by CMS, and I sympathize with the HealthOP, but the Division has requirements and it has to protect consumers,” said Colorado Insurance Commissioner Marguerite Salazar. “It is a key function of Colorado Divison of Insurance to make sure that insurance carriers are financially stable enough to pay the claims of their policyholders. While Colorado HealthOP can continue to pay claims for the rest of 2015, we cannot allow it to sell or renew policies on the exchange for 2016.”

Commissioner Salazar added, “It is truly unfortunate, but the Division had to act now, before open enrollment gets started November 1st. To delay any longer would undermine the open enrollment process, impacting the entire health insurance market in Colorado and negatively impacting Colorado consumers. And it would have been even more costly to consumers if this action had to take place once 2016 started.”

What does this mean for Colorado HealthOP members?

• As of September 15, the HealthOP had 82,785 members, with 79,877 under individual policies, while 2,908 are covered under small group policies.
• Current individual and small group Colorado HealthOP policyholders will continue to be covered until the end of their policies, as long as they continue to pay their premiums. But for coverage in 2016, HealthOP members will need to choose plans from other insurance carriers.
• Members with individual policies must choose another carrier during the upcoming open enrollment for individuals, Nov. 1 - Jan. 31. Consumers can select coverage through Connect for Health Colorado, or off-exchange, but are reminded that tax credits are only available when purchasing coverage through Connect for Health.

Consumers should know that under Colorado law, they will NOT be responsible for payments to providers that should be paid by the HealthOP, as the company will continue to pay claims for current members.

If for some reason, the HealthOP is unable to pay claims, the Colorado Life & Health Insurance Protection Association, a nonprofit organization that assists Colorado residents with health insurance policies by insurance companies in financial difficulties, would step in and pay claims. It is for situations such as this that the Association was created.

A representative of the association, Chris Chandler, said, “If called upon, the Life and Health Insurance Protection Association is prepared to provide a safety net for members and ensure the payment of claims consistent with its statutory mission of protecting policyholders.”

Colorado HealthOP members must still pay their premiums for their coverage to remain effective. They will still be required to pay for their share of charges such as deductibles, co-payments and co-insurance, as required by their plans.

What does this mean for the 2016 open enrollment?

For the 2016 open enrollment for individual health insurance, Colorado HealthOP plans will not be available to buy or renew through Connect for Health Colorado. HealthOP plans will also not be available for small employers to buy or renew through Connect for Health’s SHOP program

As for the impact on 2016 open enrollment, this could, ironically, have the effect of increasing (or decreasing...though I think this means that they would increase) the APTC (federal tax credits) for exchange enrollees...because the formula for that is based on whatever the 2nd-lowest-priced Silver premium is...which happened to be the one offered by Colorado HealthOP:

Removing Colorado HealthOP from the exchange’s 2016 offerings has an impact on all of the information and calculations for open enrollment. This will also impact the advance premium tax credits (APTC) that help make insurance more affordable for many. APTC is based upon the second-lowest Silver plan in an area, and since the Colorado HealthOP was the carrier with that second-lowest Silver premium in many areas throughout the state, this decision will impact those calculations. The Division is revising its figures for the number of carriers and plans available and the statewide and geographic area average premiums.

The approved plans and premiums for 2016 should be available from DOI in the coming days.

As with every open enrollment, Colorado consumers should review all of their health insurance options and are free to explore all of the plans available in their area to determine the best fit for their health and financial needs.

While Colorado consumers generally will be able decide between staying with their current plan or moving to a different plan, Colorado HealthOP members MUST choose a plan from a different insurance company for 2016.

Who to contact with questions?

Colorado HealthOP members enrolled through Connect for Health Colorado - contact Connect for Health Colorado with questions about renewals and choosing new options - 855-752-6749. Consumers with questions about payment of claims by the HealthOP should contact Colorado HealthOP member services - 866-915-6619.