What went wrong with the Colorado health co-op

When Obamacare passed, I just cried. I watched the votes come in,” says Emilyn Inglis of Lyons.

Diagnosed with type 1 diabetes at age 7, Inglis has been regularly seeing doctors and filling prescriptions for the last 29 years. As a performing musician and self-employed music teacher, Inglis had been paying her own medical bills, unable to access affordable health insurance without an employer. “I realized I probably could have bought a new car at this point with all the money I have spent just in the care that I need on a daily basis, just to keep myself healthy,” she says. “There’s no point in saving money, there’s no point in buying a house. … And it made an impact on my family because if I went completely broke, they would have to step in and they don’t have a lot of money to do that.”

Her daily medical supplies include eight insulin test strips a day (approximately $1 a strip), a specific brand of insulin given an allergy she has to the generic kind ($100 a bottle, two bottles a month) and plastic tubing for her insulin pump she changes every three days to prevent infection ($12 per set). On top of that, she sees her endocrinologist every three months and undergoes routine kidney-function tests.

“It’s just an astronomical cost,” she says.

She had received some help from the former state program, Cover Colorado, but with the passing of the Affordable Care Act (ACA), or Obamacare, Inglis was finally able to get insurance through the marketplace. In 2014, the first year ACA plans were available, Inglis signed with Anthem but after a frustrating year of fighting for basic coverage of her exorbitant health care costs she switched providers in 2015. Given the low-cost premiums, she signed up with the recently folded Colorado HealthOP, a nonprofit consumer oriented and operated plan (co-op) founded with loans from the federal government.

“What was really unique about Colorado HealthOP was that they saw all of this care as something that they should pay for to keep me healthy as an investment in their future as a company and my future as a healthy human being,” she says. “This is the first insurance company that seemed to be making sense.”

Inglis had finally found an insurance company she could work with. The customer service department problem-solved with her to get her the care she needs. After battling health care providers and insurance companies for almost a decade, she finally wasn’t constantly wondering if there was a better plan out there.

That was until the Colorado Division of Insurance (DOI) announced on Oct. 15, 2015 that HealthOP couldn’t offer health insurance on the Colorado market in 2016, making it the twelfth co-op in the nation to fold out of the original 23. While conservatives in Congress and many of the Republican presidential candidates say this is just another example of the failure of Obamacare, those on the other side point the finger at legislation that has created an impossible environment for the ACA to function as intended.

And despite communications with HealthOP management, as well as Colorado Senators and Representatives, Inglis, like many former HealthOP members, still isn’t sure exactly what happened.

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As one part of the 2010 ACA, the co-op program was designed to help create nonprofit health insurance companies as an alternative and competitive option for health plans on the individual and small group market. The program provided the nonprofit start-ups with federal loans, as well as the additional assurance of three premium stabilization programs: risk adjustment, reinsurance and risk corridor, known as the 3Rs.

Reinsurance is used to offset the cost of insurance for people with remarkably high medical claims. The risk adjustment program takes money from the health plans of lower-risk populations and gives it to plans enrolling high-risk individuals, such as those with chronic illness. And the risk corridor program accounts for the uncertainty about how newly insured populations will use health care benefits under the new system.

“They (the 3Rs) were put into the Affordable Care Act to make sure that new entrants in the markets could succeed. They were part of what made this whole idea work and everybody knew that,” says Chuck Holum, board president of Colorado HealthOP. “All of our rate planning and all of our financial assumptions going forward had been based on that.”

The 3Rs were designed to help companies price their health plan premiums in a market that is no longer based on health history or pre-existing conditions, while protecting consumers from high premium rates to account for that risk. The risk adjustment program is a permanent function of the ACA, but both the reinsurance and risk corridor programs only cover the first three years of the law’s implementation (2014-17). The Centers for Medicaid and Medicare Services (CMS) administers the 3Rs, under the Department of Health and Human Services.

For 2014, Colorado HealthOP paid into the risk adjustment program, Holum says, and their claims for $14 million out of the reinsurance program were paid in full. By early fall 2015, HealthOP was still waiting for an additional $14 million or so from the risk corridor program.

Under the risk corridor program, if a health plan collects more in premiums than it spends in medical claims by a certain amount, it pays into the federal pot. In turn, health plans that have more expenses than collections would, ideally, be paid the difference by the program.

“It’s really to protect from sharp premium fluctuations that [could] occur in the first three years until the insurers have better information on the type of enrollees they have,” says Aaron Albright, director of the media group for CMS. “You wouldn’t know until you actually have the data that the insurance companies are requesting less than they are paying in, or vice versa.”

The intention of CMS was to operate the risk corridor program budget neutral over the three years of the program, says Albright, assuming the request for claims might be higher than payments in some years and not others. However, at the end of 2014, Congress passed legislation that required the program to be budget neutral each year, as well as prohibiting the use of taxpayer funds should a shortfall exist.

CMS officials testified before Congress and communicated to insurance providers that they expected sufficient funds for 2014 with the caveat that if there wasn’t, they would make payments in proportion to the shortfall and use subsequent years’ funding to pay back the 2014 claims.

The deadline for submitting payments and claims for 2014 to the risk corridor program was July 31, 2015 and CMS expected to announce funding availability by mid-August. However, as CMS began running the data through its formula, it became clear that roughly half of the insurance companies had to resubmit data due to discrepancies. This prolonged the process and CMS was unable to make the announcement until the beginning of October. “We couldn’t do the calculations unless we had solid data. Once we did that, we ran it through the formula,” Albright says. “It’s basically math. It’s money in and money out, and we were unable to give out any more than that.”

The formula determined the government only collected $362 million dollars in the program, despite claims for $2.87 billion. Given the budget neutrality requirement, that meant CMS was only able to pay 12.6 percent of companies’ claims. For Colorado HealthOP, that meant approximately $1.8 million, instead of the $14 million they had requested.

“As a start-up they were running close to the edge,” Vincent Plymell, communications manager at the Colorado DOI, says. “As with any start-up, the money question was always tough. Up until the point that they didn’t get that money from the feds, they were meeting the surplus requirements. But when they didn’t get that, that just kind of turned their world upside down.”

HealthOP Executive Director Julia Hutchins says several adjustments to the ACA made it difficult to make HealthOP financially viable. “The first thing that made it very difficult and sort of wrote the future for us, was when the president promised everyone they can keep their health plan,” she says. This meant that the majority of the 14,000 members who signed with HealthOP in 2014 hadn’t had insurance previously and accessed a lot of care that first year. That also meant higher than expected medical expenses for those 14,000 members.

“Our health care costs were just through the roof and so much higher than anybody could have anticipated,” Hutchins says. And although all health carriers reported high costs that year due to the pent up demand, the bigger companies were able to absorb the cost in other areas of business, whereas the co-op couldn’t.

Ten other Colorado companies also didn’t receive expected risk corridor payments, like many across the nation. “As we looked into the situation in early October after CMS announced the shortfall, we reviewed each carrier to assess the financial impact,” Plymell says, “and determined that no other carrier was impacted in a way that would impact their continued sustainability.”

But 2015 was looking better for HealthOP. They grew their membership from 14,000 to 83,000, representing 40 percent of the Colorado Health Exchange market. Eighty-three people ran for five seats on the board of directors. And they had enough cash flow to continue operating, while expecting to start turning a profit by 2016, as well as build up reserves and potentially pay back the federal loans early. But that was all dependent on the 2014 risk corridor payments. In the end, when the payment didn’t come, they were approximately $12 million short, which they had to account for as a liability, plummeting their losses even more.

“We were really exceeding our financial predictions all of 2015 and ended up having to close because of what happened in 2014,” Hutchins says. “Which is so crazy. We were on a trajectory to be successful and our lowest cost plans were the ones making the most money.”

After the risk corridor funding announcement in October, the Colorado Division of Insurance gave the HealthOP 10 business days to find additional funding to offset their losses: approximately $30 million. Hutchins says in those 10 days, the nonprofit was able to obtain three letters of intent from potential investors.

“Again, this just validates that we had a good business model that was worth investing in,” Hutchins says. However, “none of those was check in hand, and the Division of Insurance just felt like they couldn’t take the chance in one of those working out.”

“Look at that from our perspective,” Plymell, of DOI, says. “Talking about just the state regulations, when they don’t meet the capital and surplus requirements and go into the negative, we are required to take action. But let’s say we didn’t have that law and say, ‘Well, we believe in you and let’s turn this ship around.’ And then we’re having to do this in March or April or May or June. It’s a lot harder to extract people out of that.”

People would have already paid into deductibles and out-of-pocket costs and then would have had to switch health insurance carriers without the benefit of open enrollment and the Colorado Health Exchange. The uncertainties of how much time it would actually take, and the consequences of a midyear closure were too risky.

“The blow, in kind of looking back at how it all went down, seemed to be when Congress said that the program had to be budget neutral. That they couldn’t access any other funds to make up the shortfall,” Plymell concludes. This was back at the end of December 2014, after HealthOP had already set approved premiums for 2015 and enrollment was already underway.

“It was too late at that point to change our trajectory,” Hutchins says. “Prices had been set, enrollment was coming in. We were definitely blindsided and felt abandoned, but the bottom line is the risk corridor program was critical. It needed to be funded to help small carriers serving large numbers of newly insured survive the initial challenges of health care reform.”

But other co-ops around the country, specifically those that are still in business, didn’t rely on the risk corridor payments in the same way that Colorado HealthOP did. Although CMS’s announcement of funding was disappointing for these companies, it didn’t cause them to close their doors.

“Other companies didn’t count on [the risk corridor payments] essentially in their accounting,” Plymell says. “Obviously, they filed what they were supposed to file with the federal government and said, ‘We’re due x number of dollars.’ But other companies didn’t book it as something they were going to have, whereas the HealthOP did.”

Take the Maine co-op, Community Health Options, as an example. In 2014, the Maine co-op was the only co-op to report a profit. And although the company has reported a loss over the first three quarters of 2015 due to high medical claims, in 2016 the health insurer has expanded into New Hampshire and stopped accepting new customers so as not to exceed capital resources.

As for risk corridor payments, “We didn’t factor them in at all or consider them in our prices,” says Community Health Options CEO Kevin Lewis. “I don’t know to the extent that others leaned on that when they were pricing in preparation for 2014. We just saw it as too much of an unknown and understood the risk corridor was there in case … we didn’t want to lean on that as a way to subsidize the business model. That was never the intention of the risk program but the risk corridor program should be there in the advent of a higher than expected claims experience.”

He admits health insurance is a difficult market to enter, especially given the peculiarities and changing regulations of Obamacare. And the failure to pay the risk corridor claims has the potential to destabilize the risk pool and ultimately could affect the health of the insurance market moving forward.

But he also says the co-op model has the potential to still expand, like what Maine’s Community Health Options has done in New Hampshire, but only with available capital and an environment that fosters fulfilling commitments and potentially even some adjustments to the premium stabilization programs. “I think that the principle and the model [of co-ops] has a lot of salience for the entire country and people definitely gravitated towards it,” Lewis says. “They love that concept and they also want to make sure they have the best value and they are able to get the most bang for their buck.”

Granted, Maine has a much smaller health insurance market than Colorado, with only three carriers offering plans, including Community Health Partners. And it’s this competitive market that also made Colorado HealthOP’s success as a start-up difficult from the beginning.

“What we have seen is that the co-ops that have been able to continue to exist are largely functioning in markets where they are really competing only against maybe one or two other insurers,” says Adam Fox, the director of strategic engagement at Colorado Consumer Health Initiative, a bipartisan nonprofit. “Therefore they are able to price their premiums a little bit higher and not necessarily be faced with not having enough insured lives to make it viable in the same way. Because Colorado has a more competitive health insurance market with so many carriers, it really meant that HealthOP had to come in with competitive prices, which meant that they weren’t able to build up some of the reserves that the Division of Insurance eventually was wanting to see and that those federal funds would have helped fill.”

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Ultimately, both Hutchins and HealthOP board president Holum hold the federal government and not the Division of Insurance responsible for the closing of the co-op. Holum says he heard politicians in Congress, specifically presidential candidate Marco Rubio, call the risk corridor program a bail out for insurance agencies. It is opinions like that which undermine the Affordable Care Act, according to Holum. But, he says, CMS kept assuring them that they would get their money. Regardless of the political forces at play, in the end Holum says he feels betrayed by the Obama Administration more than anything else. Hutchins also conveys these same feelings of betrayal.

“You expect all the Republicans in Congress would be trying to find ways to undermine the Affordable Care Act. It’s predictable behavior,” Hutchins says. “I think what was so hard is that we also expected the Administration would do everything it could to support us. We were really the front lines of signing people up getting people enrolled, and they just didn’t [support us].”

But Albright says the smaller-than-expected risk corridor payments weren’t the only reason why some of the co-ops failed. “The announcement did have an impact and I’m not minimizing that,” he says. “But the data went where the data went based on the formula. … It contributed but there are many other factors regarding companies’ stability other than risk corridors. There is more than one factor here.”

Moving forward, Colorado HealthOP was set to raise prices in order to remain financially solvent. While HealthOP offered the lowest premiums in 2015, they had plans to increase their premiums by 25 percent in 2016, according to Plymell. Compared to other plans still on the market, that rate increase would have been the second highest and twice as much as almost half of the other carriers. “They were going up significantly, they were going to be up near the top of that pack of rate increases,” Plymell says. “They would have been up middle to high on premiums.”

But Inglis for one would have stayed with the co-op despite premium increases. “After that first few months period (in 2015), I decided I was going to stay with them,” she says. “Even if they raised their rates, it would be worth it. It is worth it to stay with a company who actually has policies and people and communication that shows that they care.”

With the help of an insurance broker, Inglis was able to find a plan for 2016, with her previous insurer Anthem, that allows her to continue seeing her doctors at the Barbara Davis Center for Childhood Diabetes in Aurora and sign up through the Colorado Health Exchange. But she has yet to receive a thorough explanation of benefits or her membership card with account information, even though she signed up in early December. She went to her first doctor’s appointment of the new year on Jan. 8 and was given an estimated price of $142 for the visit, but isn’t sure if that will change based on her benefits. She was unable to fill her new prescription without her membership card, which she is still waiting for in the mail. She says she’s waited on hold up to 30 minutes with the insurance company several times without ever speaking to anyone.

A couple of weeks before HealthOP announced it was closing, Inglis was approached by petitioners gathering signatures for ColoradoCare, the universal health care initiative set to be on the 2016 Colorado ballot. At the time, Inglis didn’t sign the petition. “I liked Colorado Health Op so much that I was feeling kind of selfish and was like, ‘I don’t want to sign that, I like this health insurance,’” she says. “It wasn’t necessarily a well thought out decision [on my part] but now I’d support it.”