If your state still has a CO-OP, should you enroll?

12 of 23 CO-OP health insurers have shut down. Are the remaining 11 viable?

Will the remaining CO-OPs survive? Should you enroll in one if it's available?
Member-owned health insurance CO-OPs have been popular with consumers, but more than half have become insolvent. Should you enroll in one if it's still available?. Juanmonino/E+/Getty Images

What's going on with the CO-OPs?

When the details of the Affordable Care Act were being hammered out in 2009, Democrats initially asked for a "public option" that would compete against private health insurers in the exchanges. They envisioned a government-run health insurance program, similar to Medicare. 

But that idea didn't have enough support in Congress to be viable, and was never included in the ACA.

Instead, Senator Kent Conrad (D-North Dakota) proposed Consumer Operated and Orieted Plans (CO-OPs) as an alternative. 

The CO-OP program that was ultimately created under the ACA however, was vastly different from what Senator Conrad had envisioned. The original plan was to fund CO-OPs with $10 billion in grants. But that was eventually reduced to $2.4 billion, and it was provided as short-term loans - with restrictions on how the money could be used - instead of grants. 

The ACA's risk corridor program was supposed to be a mechanism that would allow smaller carriers to compete in the health insurance industry by transferring money from profitable carriers to those that lost money in the first three years of ACA implementation. But in October, insurance carriers found out they would receive just 12.6% of what they were owed under the risk corridor program, because carrier losses across the country in 2014 far outweighed profits (here's a timeline of how the risk corridor program evolved into far less of a safety net than originally envisioned; a major factor was the decision made by Congress in December 2014 to retroactively require the risk corridor program to be budget neutral, despite the fact that carriers had based their 2014 budgets on guaranteed payouts from the risk corridor program; the budget bill that Congress passed in December 2015 contains a provision requiring risk corridors to continue to be budget neutral).


In large part due to the risk corridor shortfall, fewer than half of the original CO-OPs will still be operational as of January 2016. But insureds in 12 states can still purchase CO-OP insurance for 2016: Connecticut, Illinois, Maryland, Massachusetts, New Hampshire, Montana, Idaho, New Jersey, New Mexico, Ohio, Oregon, and Wisconsin (Maine still has a functional CO-OP, but new enrollments will cease on December 26; that CO-OP is one of two offering plans in New Hampshire, and new enrollments there will also end December 26).

Should you enroll in a CO-OP if it's available?

CO-OPs across the country gained significant market share in 2014 and 2015, and have proven very popular with consumers. If you're in one of the states where CO-OP plans are still for sale, does it make sense to enroll, knowing that more than half the CO-OPs have already failed? There's no one-size-fits-all answer to that question. But there are some points to keep in mind if you're trying to decide whether a CO-OP plan is a good idea.

Each state's insurance commissioner is responsible for licensing and overseeing health plans that operate in the state. Carriers are required to maintain adequate reserves in order to continue to do business, and the good news for the remaining 11 CO-OPs is that they've all made it through their first two years - including the risk corridor shortfall - without running afoul of their states' financial requirements for health insurers.

But that's not to say that they'll all survive long term. If you do enroll in a CO-OP, it's wise to be aware of the fact that there's a possibility more CO-OPs may become insolvent in the next year or two.

If that happens, you'll have the option to switch to any other health plan in your area - either during open enrollment or during a special enrollment period triggered by loss of coverage. Of the 12 CO-OPs that have failed thus far, 10 are shutting down as of December 31, so members simply had to select a new plan for 2016 during open enrollment. But two CO-OPs - Health Republic Insurance in New York and CoOpportunity in Iowa/Nebraska - shut down earlier in the year. Their members were able to transition to plans from other carriers with no gap in coverage, but it's admittedly a hassle to be forced to switch insurers. This is particularly true if you're in the middle of treatment for an ongoing condition and other carriers' networks don't include your doctors.

If you do decide to enroll in a CO-OP plan, rest assured that regulators in your state will take whatever action is necessary to protect members if the CO-OP eventually becomes insolvent. And although the CO-OPs that have failed in 2015 have mostly been able to fulfill their claims obligations, there are state guaranty associations in every state that will step in to pay outstanding claims if an insolvent insurer is unable to do so. 

In short, there are mechanisms in place to ensure that members don't get left holding the bag if an insurance carrier is running low on money or becomes insolvent. That doesn't mean it's always a smooth process though, and members may have to jump through additional hoops to get claims paid if the carrier goes out of business. But if the CO-OP in your state is offering plans that best fit your needs for 2016, it still makes sense to consider enrolling in one. 

What's the outlook for the CO-OPs?

The Associated Press reviewed financial statements from ten of the remaining 11 CO-OPs, and found that all of them incurred losses in the first three quarters of 2015, averaging about $21 million. Evergreen Health Cooperative in Maryland lost the least ($3.9 million), while Land of Lincoln Mutual Health Insurance Company lost the most ($50.7 million). 

In Maine and New Hampshire, Community Health Options has opted to cease enrollment for 2016 as of December 26, due to mounting financial losses in 2015 (but they will continue to provide coverage in 2016 for people who enroll by that date). This is despite the fact that Community Health Options was the only CO-OP that was profitable in 2014.

And it's possible that risk corridor money might not be available until after the end of 2017. The shortfall from 2014 is scheduled to be paid using 2015 funds, but given the losses that are being experienced by many carriers (not just CO-OPs) in 2015, it's possible that the risk corridor program may have a similar shortfall in 2015.

In November, the Centers for Medicare and Medicaid Services (CMS) sent a letter to insurers letting them know that the agency's plan is to "explore other sources of funding for risk corridors payments" if there's still a shortfall for the full three years' funding by the time the 2016 payments are made at the end of 2017. But although big carriers with significant reserves may be able to wait that long, there's a distinct possibility that start-up insurers like CO-OPs will struggle to remain viable if they have to wait until after the end of 2017 to receive funding that was initially owed to them starting at the end of 2015.

In order to remain viable, CO-OPs - along with the rest of the individual market carriers - will need to attract more young, healthy enrollees. That appears to be happening for 2016, and some industry experts are predicting that adverse selection will begin to taper off by 2017. But whether the remaining CO-OPs will remain viable over the next few years remains to be seen.

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