Photo by David Wilson
The Maine Bureau of Insurance is closely monitoring Community Health Options, as the nation's only profitable co-op under the Affordable Care Act in 2014 posted a net loss of $74 million for 2015 and 2016 combined, according to information on the maine.gov website.
In 2014, Maine Community Health Options, reported net income of $7.3 million, according to the state's Bureau of Insurance.
On March 1, Community Health Options filed its annual statement for 2015 reporting a net loss of $31 million for 2015 and a projected loss of $43 million for 2016, according to the Bureau of Insurance. The $43 million premium deficiency reserve is required to be included in the current reporting year when there is the probability of a loss on unearned premiums.
Higher than expected enrollment, and premium rates that do cover expenses are responsible for Community Health Options dive into red ink, according to Michael Gendreau, director of Outreach, Education and Communications.
The co-op must project the premium rates well in advance, he said.
"The first year we had no data, we were new," Gendreau said Monday. "We were relying on market analysis and actuarial data. What we had put forth as a rate was insufficient."
Enrollment at the co-op, which also covers beneficiaries in the border state of New Hampshire, is 84,000, a number larger than expected, Gendreau said. The cost of claims, due to higher utilization than projected, has also exceeded expectations.
"Rates were insufficient to cover expenses," he said.
The Bureau of Insurance agreed, saying the premium rates for Community Health Options individual coverage in 2016 were inadequate and under the Affordable Care Act, couldn't be changed until January 1, 2017.
Its 2015 net premium income increased by 97.5 percent in comparison with 2014, while benefits and loss related payments increased by 131 percent, the insurance bureau said.
Premiums will increase for 2017, Gendreau said, releasing no details on a projected new rate.
The loss comes at a time when the salaries of top executives have risen substantially, according to a story first reported in the Portland Press Herald in Maine.
CEO Kevin Lewis received a pay increase from $245,057 in 2013 to $344,478 in 2014; COO Robert Hillman's pay increased from $236,820 to $314,124; and the salary of CFO Edward Vozzo rose from $188,449 to $257,875 over the same time period, according to information filed with the IRS.
Gendreau declined to comment on the salary increases.
The Portland Press Herald reported that Lewis has received a 10 percent cut in pay and other top managers had volunteered to take pay cuts and eliminate bonuses.
The Bureau of Insurance said co-op management and employees have worked hard to reduce 2016 expenses and other costs.
Compensation in the seven figures is not unusual for health system CEOs.
The future financial viability of co-ops recently came under scrutiny when a Senate subcommittee questioned Andy Slavitt and Kevin Counihan of the Centers for Medicare and Medicaid Services on over $1 billion spent by taxpayers to shore up 12 failed co-ops.
The Consumer Operated and Oriented Plans were set up three years ago under the Affordable Care Act to give consumers options in choosing coverage in the marketplace. However, 12 of the original 23 co-ops nationwide have failed.
According to information filed in July 2015 by the Office of the Inspector General, Community Health Options was the only co-op in 2014 to be in the black.
"The BOI's concern is that CHO is thinly capitalized and that adverse variation from plan could in the future adversely impact its ability to continue to transact an insurance business," the Bureau of Insurance said.
Gendreau said he believes the co-op model remains viable and that Community Health Options expects better things for 2017.
"We're very confident," he said. "We're in regular communication with the Bureau of Insurance in Maine and New Hampshire as we look to 2017 and stay focused on an affordable product. We will return to positive financials in 2017."
Maine Community Health Options, organized in 2011, started business in 2014 with $132.3 million in capital from the federal government, according to the Bureau of Insurance.
Enrollment grew to 84,269 members as of February 29, making it the largest writer of individual health insurance in the State of Maine, it said. In the state, only two insurance companies, including the co-op, offered health plans on the marketplace, and the Maine co-op offered the lowest priced plans in nearly every category, attracting about 80 percent of marketplace consumers in the state, according to oig.hss.gov.