Risky Business: Only Three of the ACA’s 23 co-ops Remain

One lesson learned from the ACA is that the risk of failure for the law’s health insurance co-operatives was quite high. All but three of the ACA’s 23 co-op insurers have failed since 2015, one year after the ACA exchanges were launched.

The three survivors are Maine’s Community Health Options (CHO), Mountain Health CO-OP in Montana (which also offers coverage in Idaho and Wyoming) and Common Ground Healthcare Cooperative (CGHC) in Wisconsin. Called the “little miracles” for their ability to survive despite the risks and increased competition, each reported a profit in 2018 and 2019 after suffering big losses in their first three years of operations. All three were profitable again in 2020, but it is too early to say by how much.

Although insurance is always risky, all three co-ops entered 2021 with stronger balance sheets thanks to three years of profits and much larger reserves after getting some long-overdue risk corridor funds that the federal government promised insurers under the ACA. Those funds were delayed for four years because the government illegally limited what HHS could pay out, says Kevin Lewis, CHO’s president and CEO. (The GOP-led Congress had blocked the risk corridor payments.) The three co-op insurers sued HHS, and each received a multimillion dollar settlement last year.

In interviews, executives with the three co-ops talked up the value of operating nonprofit, co-operative insurers, which, by design, must focus on meeting members’ needs. “I don’t think a for-profit operation is a good model for running a health insurance company,” says Mountain Health CEO Richard Miltenberger. Before joining Mountain Health in 2018, Miltenberger had decades of experience as an executive running for-profit health care companies and health insurers. “You shouldn’t be mixing Wall Street demands with how much care we’re going to give members,” he adds. CGHC’s CEO Cathy Mahaffey agreed, saying, “Individuals and employers need a nonprofit, member-centric health insurance company that puts members’ needs first.”

Lewis comments, “Being a nonprofit, we win on service, our local knowledge and having a local presence. Our only calling is being focused on doing what’s right for our membership.”

The co-op model has stimulated competition among health insurers, as Congress intended when it included provisions allowing for co-ops in the ACA, which was signed into law by President Barack Obama in 2010. Seeking to remain competitive in Maine, for example, other insurers have adopted some of CHO’s benefit designs, Lewis notes. “In addition, the state has mandated that in some cases, all insurers need to adopt some of our benefit designs,” he says. “Also, the more competition there is, the better consumers are served.”

Risk corridor payments arrive

All three co-ops will be able to serve members’ needs more effectively because, in April 2020, the U.S. Supreme Court ruled in Maine Community Health Options v. United States that the three co-ops and one other insurer were entitled to more than $12 billion the government had not paid them from 2014 to 2016 under the ACA’s risk corridor provisions. Established to encourage health plans to participate in the ACA’s Marketplace, the risk corridor program required the federal government to shift some of the profits from high-earning insurers to stem losses among insurers with deficits.

As a result of the Supreme Court ruling, Mountain Health received $56 million in August 2020 and used about 15% of the sum to pay legal fees. About 10% went to policyholders in the form of premium credits. The remainder went into reserves and for marketing to attract more members, including employers in the small group market (those with fewer than 100 workers), Miltenberger says. CGHC received $90 million at the end of November and used a portion to repay an obligation to an unnamed organization that provided what Mahaffey calls a financial lifeline of $30 million in 2016. Those funds helped CGHC continue operations when it otherwise might have closed in 2016, she says.

CGHC used the risk corridor funds in multiple ways. “We used part of that money to pay our legal fees, four our obligations for the financial lifeline and to issue rebates to our members,” Mahaffey says. Any amount left over will go into reserves, she says.

At the end of September, Lewis’ CHO received $59 million in risk corridor payments. As in Wisconsin and Montana, some of those funds went to pay legal expenses, 16% went to policyholders in the form of rebates, and the remainder will go into reserves, Lewis says. “Having a healthy reserve allows an insurer to weather whatever comes up in the market,” he adds. “If you don’t have sufficient capital reserves, that could lead an insurance company into trouble.”

Pursuing growth

The risk corridor funds also allow the co-ops to market health insurance to more individuals and to employers, as Mountain Health has done. After it was founded in 2014, Mountain Health moved into Idaho in 2015, offering individual and small group coverage. This year it began selling similar plans in Wyoming. Mountain Heath is the only co-op to offer health insurance in more than one state, Miltenberger says.

In late December, Miltenberger says, enrollment had increased in Wyoming and Montana, but the numbers were changing because many enrollees still needed to make their first premium payments in January.

Until this year, Blue Cross Blue Shield (BCBS) of Wyoming was the only insurer offering major medical coverage in the state and had an enrollment of about 25,000 individuals. Once Mountain Health entered the market, BCBS of Wyoming dropped its rates by about 10% for this year, according to Louise Norris, an insurance broker in Colorado who tracks insurance rates for HealthInsurance.org.

CHO is also seeking to add new members. After Maine expanded its Medicaid program rules in 2019, enrollment in ACA exchange plans declined from 71,000 individuals in 2019 to 62,000 in 2020, according to Norris’ figures. That drop affected the Maine co-op; the number of individuals it insured declined slightly from 26,800 in 2020 to about 25,500 this year, nearly half of whom are in the employer market, Lewis says. “That modest decline is due to a shrinking individual market and aging into Medicare,” he says. CHO’s competitors are Anthem, which reentered the Maine market in 2019 after leaving in 2017, and Harvard Pilgrim. Despite this competition, CHO expects to report a profit for 2020, Lewis says.

CGHC is continuing to expand, Mahaffey says. In 2018, the Wisconsin co-op was the only health insurer in seven Wisconsin counties, but as of last year it had 54,000 members (down from 62,000 in 2019) in 20 of the state’s 72 counties. In December, Mahaffey estimated the co-op would have 50,000 covered lives, although CGHC did not yet have numbers for the small group market.

Joseph Burns is an independent journalist in Brewster, Massachusetts, who writes about healthcare.