END OF 2018 OPEN ENROLLMENT PERIOD (42 states)

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Good News! CMS offers financing lifeline option to remaining Co-Ops

Throughout last September and October, I chronicled the dominos-like downfall of a dozen ACA-created Co-Op insurance carriers. They tumbled, one by one, as a result of a perfect storm of problems, some of which dated back to the final version of the ACA which was signed into law; others which cropped up along the way:

Conrad's plan called for $10 billion of government grants distributed among nonprofit, member-owned health insurance startups. The money came with few restrictions. Competing against big for-profit insurers is difficult, Conrad said. The co-ops needed as much freedom as possible to ensure their survival.

But that philosophy never had a chance in the hyper-partisan, high-stakes wrangling over the ACA. Privately operated insurers facing the prospect of new competition lobbied heavily against the CO-OP program. Politicians on both sides of the aisle criticized its structure as either too much or too little like a government-run program. In round after round of ACA negotiations, lawmakers slowly hacked away at the CO-OP program's features.

The program's funding soon dropped to $6 billion. That money would be loaned out, rather than given away as no-strings-attached grants. Most devastating in Conrad's mind, Congress inserted a rule that co-ops could not use their federal money for marketing. The companies that came out of the program would have to compete against entrenched brands such as Aetna Inc. and Anthem Inc. with minimal funds and almost no way to promote themselves.

By the time the ACA landed on President Barack Obama's desk, Conrad's optimism about the CO-OP program had faded. Congress took his carefully constructed concept and stripped it for political parts. Now it was sending it out into the world destined to struggle, if not fail outright.

"They slashed, then they whittled, and they pounded on the restrictions," he said. "My feeling at the time was, all this effort's gone into this, we've gotten this far, and well, one person described it to me as fighting now with one hand tied behind our back."

The final blow for many of them was Marco Rubio's "Rubi-Con", aka "The Risk Corridor Massacre", which yanked the rug out from under them right when they needed the help most.

Among the early problems was this: Under the terms of the ACA, the Co-Ops weren't allowed to arrange for outside financing (or at least it was made extremely difficult to do so). Colorado's HealthOP was the definitive example of this:

Just 3 days ago, Colorado HealthOP was stunned by the announcement by the state insurance division that they were pulling the plug on the ACA-established CO-OP:

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.

Unlike some of the other CO-OP shutdowns which were tragic but hardly unexpected, the announcement about CO HealthOP stunned anyone paying attention because although they do have serious financial issues carried over from 2014 due to the Risk Corridor Massacre, they're actually doing pretty well now and had just arranged for alternate financing only one day earlier:

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.

Yet just 14 hours later, the Colorado DOI lowered the boom anyway.

...Well, it looks like the CO HealthOP seems to be scrappier and more resolved than you'd expect:

Colorado HealthOP sues state, asks to keep selling policies for 2016

Troubled nonprofit faces shutdown but says it's exploring options including venture capital infusion, a merger and loans from a reinsurance company

Troubled nonprofit insurer Colorado HealthOP on Monday sued for the right to continue selling policies in 2016 as it explores solutions to its financial problems.

The request for a temporary restraining order and preliminary injunction filed in Denver District Court seeks to reverse a decision by state insurance regulators to remove the co-op from Connect for Health Colorado, the health-insurance exchange.

...The potential solutions included: a merger with another state insurance cooperative, a loan from a reinsurance company and a infusion of private venture capital.

UPDATE 10/20/15: Oy. That was fast...OK, never mind...

Colorado’s largest nonprofit health insurer went down swinging Monday, trying but failing to challenge a state decision to close it because of precarious finances.

Colorado HealthOP, a nonprofit insurer set up under the federal health care law, unsuccessfully challenged the decision in a closed-door, two-hour hearing.

The rest was history. A dozen Co-Ops crashed and burned, leaving only 11 left today, most of which are still on precarious financial footing. The good news is that some of them are showing signs of life. The bad news is that even this is tenuous.

Fortunately, I have some good news to report: Just yesterday, the Centers for Medicare & Medicaid released new rules which could help out the remaining Co-Ops considerably:

The CMS unveiled an interim final rule late Friday that could help the Affordable Care Act's struggling co-op plans. The rule also responds to insurers' complaints that people are abusing special enrollments in the exchanges.

The CMS tightened the use of special enrollments, specifically making the rules around moving to a new home more restrictive to avoid any gaming of the system. Co-ops also can seek outside funding from investors to build up their capital, something that was outlawed previously. 

The policies go into effect May 11, and the CMS will accept comments on the rule through July 5.

...With Friday's interim final rule, co-ops will be able to “enter into strategic financial transactions with other entities” as a way to bolster their fledgling reserves, the CMS said. The agency added that because many of the remaining 11 co-ops are in perilous financial shape, “we believe that these changes are needed as soon as possible.”

“In the absence of additional federal loans to co-ops, many of these entities would benefit from the infusion of private capital to assist them in achieving long-term stability and competitive success in the market,” the CMS said in the rule. Federal loan agreements previously essentially prohibited co-ops from seeking outside investors. 

I've no idea whether this move will actually work, of course. This just means the Co-Ops can attempt to drump up outside financing, it doesn't guarantee that they'll secure any, and even if they do, they could go belly up anyway...or, the influence of that outside investment could potentially lead the Co-Ops down the same path that the Blue Cross Blue Shield consortium did, gradually shifting from "patient, not profits" mindset to Just Another Big Insurance Company:

CMS Acting Administrator Andy Slavitt told the Senate earlier this year that he thought allowing private investors to inject money into the co-ops would give them a better chance to be successful. However, some analysts have said co-ops may not attract a lot of interest because of their steep losses.

Still, it's better than letting them wither on the vine, I suppose. Stay tuned.