Affordable Care Act Co-Op Health Insurer Placed Into Rehabilitation by Iowa Insurance Commissioner

The Iowa Insurance Commissioner obtained an Order for Rehabilitation with respect to CoOportunity Health, Inc. (“CoOportunity”) on December 24, 2014. With the Rehabilitation Order, the Iowa Insurance Commission took possession of CoOportunity’s assets and will administer CoOportunity under the general supervision of the Iowa District Court.

The Iowa Insurance Commissioner has indicated that it is currently evaluating the totality of CoOportunity’s situation and the full impact of the rehabilitation. It has issued initial guidance to CoOportunity’s reported approximately 96,000 insureds, as well as its providers and producers. Insureds may continue insurance with CoOportunity while it is in rehabilitation, so long as they pay the required premium payment, but individuals also may enroll in other plans beginning February 1, 2015. One effect on customers who may select new coverage on February 1 is that any deductible payments made in January will not count for the new plan. If an acceptable rehabilitation plan for CoOportunity to remain viable is not developed, the Rehabilitator will seek liquidation. While CoOportunity may remain a Qualified Health Plan under the Affordable Care Act, that could be affected by a liquidation and the resulting guaranty fund’s limits that would limit coverage to $500,000 per individual. The guideline indicates that if CoOportunity fails to be a Qualified Health Plan, its enrollees would not be eligible for tax credit subsidies available under the Affordable Care Act.

The impact on providers, presumably the largest creditors of CoOportunity, is not clear. CoOportunity has some funds to pay claims and, as described below, if and when it receives risk adjustment and transitional reinsurance payments later in 2015, those receipts will help pay claims. The Insurance Commissioner indicated that commission payments were suspended, effective immediately.

CoOportunity is the first Consumer Operated and Oriented Plan (CO-OP) to be placed into rehabilitation. CO-OPs were created under Section 1322 of the Affordable Care Act as private nonprofit health insurers that are designed to “offer individuals and small businesses additional affordable, consumer friendly and high quality insurance options.” They are supported by low interest start-up and solvency loans from CMS if they meet the CO-OP eligibility criteria. CO-OPs began functioning by offering health insurance plans in the health insurance exchanges created under the ACA, and they also offer insurance outside of such exchanges. They were supported by CMS to help ensure a competitive market in the health insurance exchanges.

CMS has issued over $2.4 billion in low interest loans to fund 23 CO-OPs, including approximately $146 million to CoOportunity ($130 million of which was in the form of a series of solvency loans that are treated as surplus under state insurance regulations). CoOportunity was licensed in March of 2013 and holds insurance licenses in Iowa and Nebraska. It began offering health insurance on the Iowa and Nebraska health insurance exchanges in January of 2014. It operated at a net loss of $45.7 million for the first 10 months of 2014 and experienced a significant drop in reported cash and invested assets. It had expected a payment of over $125 million as part of the premium stabilization programs under the ACA known as the 3Rs, standing for risk corridors, risk adjustment and transitional reinsurance. The risk adjustment and reinsurance payments are not due until late in 2015; the risk corridor payment from CMS (estimated at $60 million of the $125 million) had never been appropriated and was expressly eliminated with passage on December 13, 2014 of the Consolidated and Further Continuing Appropriations Act, that continued the funding for the federal government. These receivables arising from the 3Rs were the single largest asset on CoOportunity’s balance sheet. 

CMS declined CoOportunity’s request for an additional surplus loan earlier in December of 2014. While not insolvent, the Iowa insurance commissioner concluded that CoOportunity was “operating in a financially hazardous condition” and such condition warranted the rehabilitation proceeding. CoOportunity’s board of directors did not resist the rehabilitation.

Newly created health insurers supported by CO-OP loans entered the market with limited experience in underwriting risk. Moreover, in the first year of the health insurance exchanges, the risk pool on the exchanges was an unknown. The National Alliance of State Health CO-OPs indicated that CoOportunity’s news was “not a statement on the health insurance CO-OP program or the CO-OP concept; it’s a reflection on the fact that all insurers – not just CO-OPs – are operating in unique markets with unique business plans and varying state regulations. The circumstances for CoOportunity Health in Iowa are not the same as those in the 23 other states in which CO-OPs are currently operating.”

In contrast, critics of the ACA have cited CoOportunity’s rehabilitation as evidence of a program built on too much government dependency.  In an article, entitled “Fannie Med Implodes,” the Wall Street Journal opined that the CO-OP’s “complete dependence on government subsidies” has led CO-OP’s “to deliberately underprice their policies,” leading to distortions and financial challenges.  

CMS has issued additional solvency loans to six of the 23 CO-OPs, including CoOportunity, in the second half of 2014. Whether the CO-OP program and the other 22 participating health insurers will be successful will take more than one year to assess effectively.