Iowa/Nebraska: OUCH. CoOportunity Health being liquidated; 108K will have to go elsewhere

This is an incredibly depressing post for me to write. Last month I received word that CoOportunity Health, one of the 23 co-ops set up as part of the ACA to offer competition with the Big Boys, had run into serious financial trouble and was being yanked off of Healthcare.Gov (they were operating in Iowa and Nebraska, both of which are on the federal exchange).

This surprised me because from everything I had heard, CoOportunity was doing quite well, with upwards of 120,000 QHP enrollees last year. I've written about them several times in the past, and have kind of a special fondness for them because they were one of the first sources I had for solid OFF-exchange QHP enrollment data.

Anyway, as of December 10th, my contact at CoOportunity was unaware of any issues; they reported that everything was going great. On Christmas Eve, I was tipped off about CMS dropping CoOportunity from the exchange completely, but there wasn't a whole lot of detail given as to what had gone wrong beyond vague references to quarterly financial statements, cash flow and annual audits.

Obviously things had gone very, very wrong, but between the December rush and the holidays, I honestly just didn't have time to get to it. Plus, I'll admit, perhaps I was just reluctant to throw gasoline on the fire; they had already been pulled off the market anyway, and the powers that be were already prepping to let IA & NE residents know that they'd have to go elsewhere, so it didn't seem necessary for me to pile on.

Anyway, it's a month later, and I'm afraid that there's not going to be a chance at turning things around for the co-op:

The state’s insurance commissioner announced Friday that he would seek liquidation of CoOportunity Health, a carrier formed with $146 million in federal grants and loans under the Affordable Care Act. CoOportunity, which was one of 23 such health insurance cooperatives nationally, covered a total of nearly 120,000 people in Iowa and Nebraska before hitting financial shoals late last year. Iowa Insurance Commissioner Nick Gerhart took over the faltering carrier in late December.

In announcing his decision to seek liquidation, Gerhart said the company has less cash on hand than medical claims to cover for members. He said there was no expected infusion of new money until the second half of 2015. Special insurance-guarantee funds will pay outstanding claims, he said, but any remaining customers should switch to other carriers as soon as possible.

It's a long story that goes into the full details about what went wrong. They had no problem enrolling tons of people; from what I can tell, the 2 main issues were:

  • 1. They agreed to enroll 9,700 extremely expensive-to-treat Medicaid patients (apparently Iowa has some sort of "private option" arrangement for Medicaid expansion similar to Arkansas'? I didn't know that!!), and...
  • 2. They were hurt by the Obama administration deciding to allow non-ACA compliant policies to be "grandmothered" (extended) out until 2016.

This second point screwed up a lot of insurers' actuarial calculations, because it meant that a ton of (relatively) healthy enrollees of other insurance companies were allowed to keep their current plans for another couple of years, meaning that new outfits like the co-ops were "stuck" enrolling less-healthy, more-expensive people...but the extension policy wasn't announced until after the 2014 enrollment period had already started, and all of the premium rates had already been announced.

In other words, CoOportunity went into last year's enrollment period thinking that their pool of potential customers was going to include a certain minimum percentage of "inexpensive" enrollees, and set their 2014 pricing accordingly. By the time they realized that they were getting a lot more pricey-to-treat enrollees than they thought, it was too late to change their pricing for the year.

THIS year they presumably raised their rates accordingly, but it sounds like it was too late...the first year's costs alone had already sucked their bank account dry.

This is a normal part of the Free Market, after all...companies in the private sector go belly-up all the time as market forces shift, and many of the other co-ops are doing just fine, so I don't think there's any larger lesson to be learned here (although obviously ACA opponents will use this as an opportunity to attack the law yet again).

However, what it does mean is that in the meantime, according to the Des Moines Register article, about 26,000 Iowans and 82,000 Nebraskans are now going to have to scramble to replace the policy that they just enrolled in with one from another vendor, and quickly.

This point has not been lost on their competitors; they swept in to pick the bones several weeks ago: