Iowa Insurance Commissioner Petitions for Liquidation of Iowa/Nebraska CO-OP; How Financially Sound Are Others?

The Iowa Commissioner of Insurance (the “Commissioner”) filed a petition, on January 29, 2015, seeking to liquidate CoOpportunity Health, Inc. (“CoOpportunity”), a Consumer Operated and Oriented Plan (“CO-OP”) established under the Affordable Care Act (“ACA”) that has sold health insurance on the Iowa and Nebraska Exchanges. This planned liquidation follows the rehabilitation order with respect CoOpportunity in December, which we discussed in a prior blog post. If the petition is granted—and we fully expect it will be—the Commissioner will assume control of a liquidation of CoOpportunity under the general supervision of the Iowa District Court in Polk County. A hearing on the petition will be scheduled this month. Just as in the case of the December rehabilitation petition, CoOpportunity is not opposing the entry of a liquidation order by the Iowa District Court.In the proposed liquidation of CoOpportunity, its operations will be wound down under the supervision of the Commissioner, and responsibility for paying claims of CoOpportunity’s providers will transition to the health insurance guaranty associations in Iowa and Nebraska. The guaranty associations provide only limited benefits, regardless of the extent of claims made by a particular insured; in both Iowa and Nebraska, coverage for policyholders of a liquidated insurer is limited to $500,000 per person. There may not be coverage for medical expenses of CoOpportunity members which exceed this limit.

The petition for liquidation came as year-end financial results for CoOpportunity suggested continuing deterioration. Between November 30 and December 31, the amount of cash and invested assets held by CoOpportunity had declined by approximately $15 million, to approximately $13 million at year end. Additionally, the Commissioner noted that CoOpportunity had been unable to obtain any additional operating funds, from the Federal Government or otherwise. 

As we noted in our earlier blog post, Congress eliminated the risk corridors under the ACA in the Consolidated and Further Continuing Appropriations Act of 2015. The petition for liquidation reveals the extent to which CoOpportunity relied on risk corridor payments for its continuing solvency; CoOpportunity estimated that the potential loss of assets attributable to risk corridors to be over $80 million. The risk corridor payment was greater than the other two 3R risk stabilization payments from CMS, which together total approximately $75 million. These accounts receivable from CMS, combined with CoOpportunity’s other assets, gave it total current assets (as of 12/31/14) of approximately $102 million, well below current liabilities, which include incurred but not reported claims (“IBNR”) of over $150 million. 

Individuals currently insured by CoOpportunity have until February 15 to change carriers in the Exchange during open enrollment, and the Commissioner indicated that there will be a special enrollment period (March 1 – April 29) for CoOpportunity members. Such individuals will not be eligible for advance premium tax credits or cost sharing reduction eligibility if they delay enrollment in new plans beyond the February 15, 2015 open enrollment date.

CoOpportunity’s financial troubles may be particularly severe, but a recent AM Best Briefing indicated that only one of the 23 CO-OPs established under the ACA—Maine Community Health Options—reported both favorable underwriting and net income at the end of the third quarter in 2014. Every other CO-OP, including CoOpportunity, reported both underwriting and net losses. As of September 30, 2014, the aggregate underwriting loss for these 22 CO-OPs was more than $243 million. A.M. Best indicated that eleven CO-OPs had booked accrued retrospective premiums, overwhelmingly related to risk corridor payments, and indicated that it was “concerned about the financial viability of” several of these CO-OPs. However, CMS told CNBC that CMS was “not aware of any immediate financial threat” to any CO-OP other than CoOpportunity.

Other CO-OPs have taken steps to bolster their own financial stability. The Tennessee CO-OP, Community Health Alliance, announced that it was freezing 2015 plan enrollment as a “preventative measure to support the long-term viability of” the CO-OP, after substantial enrollee growth. Martin Hickey, CEO of New Mexico Health Connections, the New Mexico CO-OP, who serves as Chairman of the National Alliance of State Health Co-Ops, told A.M. Best’s BestWeek that he believed “other Co-ops should be able to weather the storm.” He noted that Co-Opportunity was the only CO-OP that was required by its state regulator (Iowa) to enroll significant numbers of members who would have been eligible for Medicaid if Iowa had accepted the ACA Medicaid expansion funds. 

Senator Charles Grassley, R-Iowa, has expressed concerns about CMS’ management of loans to CO-OPs, which have totaled approximately $2.4 billion. Senator Grassley told A.M. Best that he was “concerned that even though CoOpportunity’s funding shortages were well known for at least six months, CMS apparently did not tell the  CO-OP or IID (Iowa Insurance Department) that it would not receive additional funding” from CMS. If CoOpportunity had known it would not receive additional loans from CMS, the CO-OP potentially could have taken steps to secure other financing or otherwise protect its surplus. We would not be surprised to see Senate hearings on this issue, given Senator Grassley’s interest.

Despite the potential financial challenges facing the 22 remaining CO-OPs, they continue to enroll growing numbers of members on the state and federal operated Exchanges. HealthyCT, the Connecticut CO-OP, grew its market share from 3% to almost 20% of the Connecticut Marketplace enrollment, and the Maine CO-OP continues to be the largest insurer on that state’s Exchange. As the CO-OPs continue to operate and expand their business without access to additional funding from CMS, it remains to be seen whether the program will be a long-term success and whether CO-OPs will be a force for the moderation of health insurance premium growth.