Fate of CO-OPs seen undermined by unreasonable premium rates

Thanks to the Affordable Care Act’s Consumer Operated and Oriented Plan (CO-OP) Program, some 24 qualified nonprofit health insurance issuers have been created in 24 states using startup loans and solvency grants from the U.S. Department of Health and Human Services. The goal of these so-called CO-OPs is to increase consumer choice and foster competition in the individual and small group health insurance markets -- two goals now being undermined by premium rate turmoil.

To meet the challenges, states must have a steadier, more coordinated hand in how the CO-OP program rises or falls, according to sources.

Currently, states must review and approve the premium rates CO-OPs charge to ensure that the income from the premiums will adequately cover a CO-OP’s claims and expenses – it’s a state-regulated function, “not a job of the federal government,” explains health care attorney William G. Schiffbauer.

“If premiums are too low, it hurts the solvency of a company,” Schiffbauer told American Pharmacy News.

Case in point: Iowa’s CoOpportunity Health, a nonprofit health insurer that received more than $145 million in total loans from the federal government. HHS awarded the loans based on the Iowa insurance commissioner’s approval of the company’s benefit design standards and premium rates. But then before CoOpportunity Health had barely gotten off the ground, the state earlier this year ordered liquidation of the company due to cash flow and liquidity problems.

Such “unreasonable rates” also may be too high, as was the case of the Vermont Health CO-OP. The company received a federal CO-OP loan, but then the state’s insurance commissioner denied the company’s business license due to its high debt and unrealistic high-enrollment estimates. Potential customers just wouldn’t be able to afford the high premiums, the Department of Financial Regulation found.

Both cases have heightened concerns about the finances of all CO-OPs, says Schiffbauer. “If they all go under, it will be a disaster,” he said.

The solution? Schiffbauer said that premium rates must be reasonable from the start. And because states are solely responsible for overtseeing these rates -- and ensuring the solvency of these companies -- maybe states could set a condition that, perhaps, a CO-OP has to come back in and have its rates re-examined, he said.

Scott E. Harrington, a professor of health care management and insurance and risk management at the University of Pennsylvania’s Leonard Davis Institute of Health Economics, echoed such reexamination in a February brief from the Robert Wood Johnson Foundation in which he said there’s a critical “need for close monitoring and oversight of CO-OP pricing and enrollment growth going forward.”

This would include “whether and when it could become desirable for managers and regulators to restrict additional enrollment that could threaten a CO-OP’s viability,” Harrington writes.