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Co-op headed to liquidation

One of the country's most promising new insurers could not be saved by state regulators. For some local advocates and insurance veterans, it is an opportunity lost to health reform policies gone awry.

Iowa Insurance Commissioner Nick Gerhart, the court appointed rehabilitator for the bi-state cooperative plan CoOportunity Health, has determined that rehabilitation is not possible, and is now seeking a court order for liquidation.

"There is no expectation for additional cash inflow until the second half of 2015 and medical claims currently exceed cash on hand," Gerhart said in statement. "This action is being taken to protect Iowans and Nebraskans to ensure that their medical providers and claims are paid by the state Guaranty Associations in Iowa and Nebraska."

West Des Moines-based CoOpportunity was created in 2012 with $145 million in federal loans and garnered 120,000 individual and group members in 2014's open enrollment. The dynamics of loans, premium revenue, membership health and changing regulations, though, put the insurer on a path towards insolvency.

When he took over the company as a rehabilitator in December, Gerhart said CoOportunity had "insufficient capitalization," "extremely high healthcare utilization," and an unforeseen six month gap until 2014's risk sharing payments are received. The company had asked the Centers for Medicare & Medicaid Services for additional funding, but was unable to secure it.

Gerhart said he will file the petition for liquidation in early February, with the expectation that it will start at the end of the month. Iowans and Nebraskans who were enrolled in CoOportunity plans will need to find other health plans by March 31.

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Originally called Midwest Members Health, CoOportunity Health was spearheaded by David Lyons, a former Iowa Insurance Commissioner and development officer at the Iowa Farm Bureau Federation, and Cliff Gold, former senior vice president of marketing and strategy at Wellmark Blue Cross and Blue Shield of Iowa and South Dakota.

Gold left Wellmark in 2008, but was recruited out of retirement in San Diego by Lyons, whose farm bureau members were and remain among Wellmark's client base. In an interview in early 2014, Gold said he was drawn to the idea of a new consumer-focused insurance experience because it seemed to him nonprofit Blue Cross insurers had "strayed from their mission."

Wellmark and Blue Cross and Blue Shield of Nebraska each continue to have more than 50 percent market share in Iowa and Nebraska; Aetna's Coventry also has a foothold. Gold believed both states were ripe for new competition, and that a co-op might even be able to enter a third state market.

For the ACA exchanges' first open enrollment, CoOportunity's plans were in many places priced to sell. In Nebraska, contending with Coventry and BCBS of Nebraska, CoOportunity had the lowest individual premiums in three of the four rating areas (the exception being greater Omaha) and had the lowest premiums statewide in the off-exchange small group market.

In Iowa, where Wellmark has sat out the first two years of exchanges, CoOportunity competed only against Coventry, and set individual rates about "2 to 20 percent higher" and small group rates at about three to five percent lower, Gold said.

By May 2014, CoOportunity had the second largest membership of all the co-ops (after Health Republic of New York) with 50,000 individual members and 20,000 group members from 1,400 organizations, thanks in part to verdant deals with brokers. (One member was also a broker who was elected to CoOportunity's board of directors, only to step down over alleged coercion by Wellmark, the subject of a recent complaint with the insurance commissioner.)

At the end of 2014, CoOportunity had 113,000 members. Along with its premium revenue, the company had $14 million in start-up funds due for repayment within five years and $135 million in solvency loans due in 15 years. The financial target has been an operating margin of 1.7 percent that would be used to repay the loans and reduce future premiums.

According to the court filing, CoOportunity lost $45 million in the first 10 months of the year, and by December, had only $17 million left in reserves. An emergency plea to CMS for solvency funding was denied. The company had expected to receive $125 million in risk adjustment, risk corridors and reinsurance payments, but those payments were delayed by CMS until sometime in 2015. The recent federal budget passed by Congress also made changes that the company estimated reduced what they were owed by $60 million.

Some of the high medical costs that have put the company on the brink of bankruptcy certainly came from high utilization among Medicaid beneficiaries in a demonstration program using subsidized exchange plans for individuals earning under 133 percent of the federal poverty level.

In October, CoOportunity Health pulled out of the program, saying that "As a nonprofit, member-governed new health plan, we cannot ask our 85,000 other members to pay higher rates to subsidize the 9,700 (Iowa Marketplace Choice) members."

The individuals who purchased subsidized exchange plans may also have been presenting high claims, especially in Iowa, where Gerhart allowed pre-ACA individual plans to continue beyond 2014.

Gold estimated that as many as 200,000 Iowans, including many farmers, choose to stay in lower-premium pre-ACA individual policies, many of them issued and renewed by Wellmark, which plans to join the public exchange for 2016. For next year's plans, CoOportunity increased premiums in Nebraska by only a few percentage points, while raising them quite a bit more in Iowa, in some places by as much as 14 percent. "That's more than we would like, but it's largely driven by the non-compliant plans," Gold said.

Wellmark will not be able to keep offering those pre-ACA plans too much longer, and intends to start selling on the public exchanges in 2016. Without CoOportunity Wellmark may be insuring a significant portion of the high-risk membership enrolling exchange plans, or otherwise helping pay for other insurers' high-risk membership through the risk adjustment program.

The fate of CoOportunity Health and the rest of the co-ops could have significant implications for insurance markets and consumers in dozens of states and major metropolitan areas, from the West Coast to New England. After a bustling open enrollment in the spring of 2014, Gold was confident about CoOportunity. He thought some co-ops would go extinct, but that "the vast majority will make it."

(Photo via AnneCN.)