Here’s what happened to Colorado HealthOP

Debbie Lewis was in the emergency room Friday when she found out her health insurance carrier is going out of business. She read the email on her iPad, held above her bruised and battered knees, as she sat waiting for the nurse to call her name.

The message came from Colorado HealthOP, the nonprofit insurance cooperative that she joined after retiring two years ago.  The email said that state regulators won’t let the co-op offer plans through the state’s exchange in 2016. So she’ll have to find a new carrier when the enrollment period begins next month.

“It really couldn’t have come at a worse time,” Lewis said. The recent retiree from Lakewood was there to see a doctor about what she feared was a blood clot.

Around three weeks prior, she and her husband Norm were in a serious car accident. They were driving up Fremont Pass near Leadville when a car speeding down lost control. The Lewises were hit head on — totaling their car and leaving them both battered.

Norm got the worse of it, but Debbie is still hurting too.

“I’ve got sore this and sore that,” she told The Colorado Independent. “And about a million bruises — too many to count.”

Though the hospital bills haven’t come in yet, Lewis is confident her insurance will cover them. Colorado HealthOP did commit to paying claims through the end of the year. But she is nervous about what’s to come.

“On top of the crash, I really don’t need the additional stress of, ‘Oh, what am I going to do without insurance now?'” Lewis said. “I’m not old enough to get on Medicare, so until then I’m kind of screwed.”

Lewis is one of 80,000 Coloradans who lost coverage last week when the Colorado Division of Insurance decided that Colorado HealthOP isn’t in financial shape to cover all its members’ claims next year.

The co-op’s financial viability has been under watch for nearly a year now. Its coffers were looking fine until the first of this month when the Centers for Medicaid and Medicare Services, a subset of the federal Department of Health and Human Services, walked back on reimbursement promises it had made through the risk corridor program.

The program was established by the Affordable Care Act with the understanding that setting premiums for the previously uninsured or underinsured according to higher standards of coverage — like, for example, no longer being able to deny coverage based on a pre-existing condition — is risky business. So for the first three years of Obamacare, the federal government promised to help insurers stomach that risk by paying companies whose claims exceed premiums, and collecting from those whose fell short. But that cushion deflated when the Centers for Medicaid and Medicare Services announced insurers would only see 12.6 percent of what they’re entitled to under the program.

Colorado HealthOP was expecting to get $16.2 million. Instead, it got $2 million. And that’s why the co-op’s rainy day fund doesn’t meet minimum requirements set by the Department of Insurance.

Independent projections had the co-op on track to be profitable in 2016, and could have started to pay back federal start-up loans ahead of schedule. But without the cash it was promised by the feds, the nonprofit will be forced to default on $72 million in loans and send its members back out into the marketplace.

Colorado HealthOP’s chief executive Julia Hutchins said she was “astonished and disappointed” by Department of Insurance’s decision, which she called “irresponsible and premature” in a statement released last week.

“Colorado HealthOP is a profitable start-up insurance company that is in a strong financial position and, for two years, has served the critical needs of Coloradans by enhancing competition in the Colorado insurance market, driving down prices in the state health insurance marketplace and offering new, innovative choices to its more than 80,000 members throughout Colorado,” Hutchins said. “By choosing this course of action, the Division has let local and national politics hurt Coloradans’ access to low-cost healthcare options and assessed Colorado taxpayers with significant avoidable costs.”

Nearly 40 percent of Coloradans who purchased health insurance through the state exchange in 2015 are members of the co-op. As a nonprofit, the co-op gives members a voice in the benefits and services they want for as low a premium as possible, rather than having to turn a profit for corporate stakeholders. Colorado HealthOP estimates that defaulting on its federal loans will leave taxpayers with a $40 million tab.

Colorado Insurance Commissioner Marguerite Salazar called the situation “truly unfortunate.”

“Our decision is a direct result of this shortfall by [the Centers for Medicaid and Medicare Services], and I sympathize with the HealthOP, but the Division has requirements and it has to protect consumers,” she said in a statement put out on Friday.

The time is right to shut down the co-op, according to the commissioner, because open enrollment begins in less than a month.

“To delay any longer would undermine the open enrollment process — impacting the entire health insurance market in Colorado and negatively impacting Colorado consumers,” Salazar said. “And it would have been even more costly to consumers if this action had to take place once 2016 started.”

On Monday, the co-op challenged the Division of Insurance’s decision in federal district court. The filing outlines various possibilities for alternative funding to keep the co-op afloat. One of the most promising, according to the filing, is an advancing merger deal with another mission-aligned nonprofit insurance co-op.  Other possible solutions include getting a loan from a re-insurance company or a private venture capital firm.

151019 Motion for TRO and PI – Court Stamped by Natalie Stein

“Of course, Colorado HealthOP will require a reasonable time to pursue the possible solutions to replace the previously unanticipated but impending 2014 funding shortfall from [the U.S. Department of Health and Human Services] in 2015,” the motion states. And what’s a reasonable amount of time? The co-op is “supremely confident” it could be done in four weeks.

But if it can’t continue to operate in 2016, per the Division of Insurance’s decision, the co-op will have to default on its loans. And that, the motion states, will cause “irreparable harm” to Colorado HealthOP and its 80,000 policy holders. That kind of injury, by definition, can’t be adequately compensated in cash or in court, so the filing asks the court for immediate injunctive relief instead.

But that request was denied in a hearing the same day it was filed. In the end, an agreement was reached for “an orderly wind-down” of the co-op.

Oregon’s health insurance co-op also shuttered Friday, bringing the number of failed nonprofit insurance co-ops up to eight. (Others have failed in Kentucky, Louisiana, Iowa/Nebraska, New York, Nevada and Tennessee.) That means around a third of the 23 co-ops created under the ACA have tanked less than two years in.

A report by the Department of Health and Human Services’s office of inspector general this summer found that most co-ops weren’t enrolling enough members or bringing in enough money. Low enrollment could be attributed to technical difficulties like website glitches, long wait times, delays in obtaining required licenses, management shake-ups and high prices. Colorado HealthOP, on its part, had higher enrollment than what was projected — by 121 percent. But with far higher expenses from claims than income from premiums, the co-op closed out its books in 2014 having lost more than $20 million.

HHS Inspector General Report

Colorado Senator Cory Gardner found the inspector general’s report cause for concern. In September, he wrote a letter to Secretary of Health and Human Services Sylvia Burwell asking her to investigate Colorado HealthOP’s financial solvency.

Now that the co-op has indeed gone under, Gardner finds it “infuriating” to see so many individuals and families lose coverage “as a result of poor planning and bad policy.” In a press release last week, he wrote, “taxpayers are on the hook for millions of dollars in loans given out to the co-op, money that will likely never be repaid.” The co-op’s closure, as he tells it, “can be added to the very long list of Obamacare’s broken promises.”

Others on the right agree that the co-op model was always destined for failure.

“What we are witnessing is the fulfillment of long-told prophecies of what would happen as a result of this complicated and dangerous version of fake health care reform,” executive director of the free-market advocacy group Advancing Colorado Jonathan Lockwood wrote in a statement about Colorado HealthOP’s closure.

“Today’s story is exactly why people across America are looking for a repeal of Obamacare and a replacement, with true reforms that lift us all up, with expanded choice, more options, more competition and more positive outcomes for more people, all with greater affordability.”

But the National Alliance of State Health Co-ops insists the closures are a failure of the federal government to follow through on its obligations, and not a failure of the co-op model unto itself.

“With the Department of Health and Human Services already issuing lower Affordable Care Act enrollment projections and health insurance giants merging to further limit competition, the presence of co-ops is needed now more than ever,” said National Alliance of State Health Co-ops CEO Kelly Crowe in a statement. “Though federal regulators have taken some modest steps to ease co-ops’ short term financial burdens, a firmer commitment to fulfill the obligations of the Affordable Care Act’s risk programs is needed to provide stability to the marketplaces.”

Indeed, Congress actively undercut the risk corridor program that would have kept co-ops in Colorado and around the country alive. In a scarcely noticed provision of the massive 2015 spending bill dubbed “the Cromnibus,” Republicans in the House of Representatives required the Center for Medicaid and Medicare Services to keep its risk corridor program revenue neutral. It sounds innocuous — fiscally conservative at a time when deficits are high and budgets are tight. But in effect, the provision means that the Centers for Medicaid and Medicare Services can’t draw funds from any other source to finance the risk corridor payments it owes. It can only pay out what insurers pay in — hence the multi-billion dollar shortfall in what the government promised to these co-op startups.

Though the provision that tied up co-op funding was likely not the deciding factor in lawmakers’ votes on the behemoth of a bill, this is how the Colorado delegation voted: Democrat Ed Perlmutter, Republicans Mike Coffman, Cory Gardner and Scott Tipton “yea;” Democrats Diana Degette, Jared Polis and Republican Doug Lamborn “nay.”

Legislation to repeal the risk corridor program entirely has cropped up several times over the years, always fizzling out but never without significant Republican support. Cory Gardner and Doug Lamborn co-sponsored the Obamacare Taxpayer Bailout Prevention Act in the House in 2013. Then when Gardner moved to the Senate, he put his name on the bill again.

Liberals have been frustrated by Republicans’ attempts to cripple Obamacare, then point to its stumbles as a sign of failure and a cause for repeal. Every step in the law’s implementation has been political in one way or another.

Amy Runyon-Harms said she thinks Colorado HealthOP “was set-up to fail by design by those who wanted to see it fail.” As executive director of Colorado’s largest online progressive advocacy organization ProgressNow, Runyon-Harms saw the co-op as “the closest thing we had to a public option in this environment […] It’s very sad to see that go away.”

Apart from the politics, senior director of policy and analysis at the Colorado Health Institute Amy Downs thinks the co-op’s closure is a testament to just how hard it is to open up a new insurance carrier.

“I mean, you need a lot of money,” she told The Colorado Independent. “It’s a really competitive market.”

Colorado’s individual insurance market is indeed one of the most competitive in the country with seven major insurance carriers to choose from. The only other state with as many is Oregon, and none have more.

The Henry J. Kaiser Family Foundation developed the Herfindahl-Hirschman Index to measure the distribution of market share across insurers. Index values range from 0-10,000, with lower numbers indicating a more competitive market. Colorado’s clocks in at 1,792 –compared to a national median of 3,888 — making it the third most competitive market in the country.

Near term, Colorado HealthOP’s exit from the market will have the biggest impact on its policy holders who’ll have to start shopping around for a new plan come November 1.

Last year, the co-op offered the cheapest premiums in most regions of the state — which could very well account for why 40 percent of Coloradans who bought insurance through the state exchange went for Colorado HealthOP plans.

It’s yet unclear how these 80,000 people will fare without the co-op.

“In some cases they might find price breaks,” senior communications expert at the Colorado Health Institute Joe Hanel said. “But when insurance rates come out later this week, we’ll probably see average increases across the board.”

Insurance carriers submitted requests for setting 2016 premium rates to the Division of Insurance in May. Regulators review those requests all summer and into the fall. Premiums will likely be set later this week, but Hanel doubts whether the co-op’s closure will have any effect on them.

“That ship has pretty much already sailed.”

Plus, the exit of one carrier is hardly the sole factor affecting market rates.

“The degree to which younger, healthier people are signing up [for health insurance] matters a lot,” Hanel said. “And there’s a lot of consolidation going on among big national carriers. So it’ll be hard to tease out prices based only on the co-op closure.”

Connect for Health Colorado spokesman Luke Clarke said the state exchange will focus on making people aware of all the options still available to them. “Consumers did lose one choice, yes, but there’s still a lot out there.”

The co-op’s exit does mean that this year’s tax credits will have to be revalued. Tax credits are bench-marked according to the second cheapest silver plan on the market, which, without Colorado HealthOP’s low premiums, will likely be higher than last year. So even if premiums do go up, tax credits will follow suit. But, of course, choosing the right plan all depends on individual circumstance — where you live, whether you have a family, how much you make and how much care you’re likely to need.

Connect for Health advises individuals who are in the market for a new plan to consult with a broker or a navigator. Doing so is free.

“Nobody enjoys it. I mean insurance isn’t fun, but it’s really worth sitting down with someone and working through your options,” Clarke said.

Debbie Lewis certainly isn’t looking forward to it.

“I’m hoping I don’t have to worry,” she said. “It all happened so recently, so I don’t really know what I’m going to do.”

But with the crash not so far in her rearview, Lewis knows that having to switch insurance carriers — tedious or inconvenient though it may be — really isn’t the end of the world.

“So it goes, I guess.”

Photo by Health Care Costs, Creative Commons, via Flickr.