- The Washington Times - Sunday, November 15, 2015

When Amy Grech, a freelance Web consultant and horror story author in New York, was looking for health insurance, a broker pushed her toward Health Republic, the state’s co-op under Obamacare. It had the doctors she needed, and the price seemed right.

Now, two years later, she has had to scramble to find another insurer because Health Republic announced that it was closing shop and wouldn’t make it even to the end of the year, forcing roughly 200,000 New Yorkers out of their plans and back onto the market.

“It’s kind of annoying,” the 43-year-old Brooklyn resident said. She has settled on a more-established plan that has expanded its network and now covers all of her doctors, giving her the assurances she wants.

“Myself, personally, I prefer a brand I’m familiar with,” she said.

The co-ops were supposed to be the happy face of health care — user-friendly, noncorporate plans offered as part of the Obamacare’s exchanges, designed to convince consumers skeptical of major insurance companies that there was a real alternative for them in President Obama’s signature health care law.

For hundreds of thousands of co-op customers, however, the experience has been anything but easy. They now find themselves rushing to find alternative plans amid a string of failures that are shutting down more than half of the 23 co-ops that have formed.

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Some of the co-ops’ problems were self-inflicted because they severely miscalculated the market. The Obama administration also undermined them by cutting the potential customer base and, under pressure from Congress, cutting off funding that the co-ops expected and leaving them struggling to meet expectations.

Dr. Katherine Collier’s story is how the co-ops — short for Consumer Operated and Oriented Plans — were supposed to work.

The dentist said she was more likely to associate co-ops with health food stores than with Obamacare when she picked Evergreen Health Cooperative, but she quickly warmed to the young insurer.

Its premiums were competitively priced in Maryland’s marketplace, but not too good to be true. After she signed up with her 10 employees, someone from the co-op called to welcome them.

“It was like, ‘Wow, I never had that,’” Dr. Collier said.

Co-ops were added to the Affordable Care Act after Democrats lost their fight to include a government-run “public option” plan that would compete with private plans on the Obamacare exchanges. As a compromise, Kent Conrad, a Democratic senator from North Dakota, pushed to allow states to start the co-ops, which are nonprofits designed to be responsive to residents’ needs rather than to investors’ demands.

Given initial infusions of federal cash, the co-ops attracted 400,000 customers in Obamacare’s first year and more than 1 million people last year, drawn by experiences like Dr. Collier’s.

But the plans, which started from scratch, had to put together doctor networks and try to estimate their potential customer base and set rates based on the risk pool they thought they might attract — all difficult for insurers at any time, but particularly tough for startups in a market made all the more unpredictable by Obamacare’s advent.

Pundits warned from the start that the plans would struggle for market share, and that turned out to be the case in many states.

“This is not a market that’s easy to break into, even with millions in funding,” said Chris Sloan, a manager at the Avalere Health consultancy in Washington, D.C.

Success and failure

In Maine, the Community Health Options plan is doing well. It was the only co-op to make money last year, offering competitive rates and good customer service. Of course, it was helped by the fact that only one other insurer, the for-profit Anthem Inc., was offering plans on the exchange in Maine.

Community Health Options had nearly 40,000 customers at the end of last year, far more than the 15,000 or so the co-op had predicted. That accounted for 80 percent of the marketplace. The co-op had figured to lose $1.5 million in 2014, but it ended up earning a profit of $5.9 million, which it pumped back into its operations.

The co-op now has branched out to offer plans in neighboring New Hampshire.

Even high enrollment wasn’t a signal of success, however. The co-op serving Iowa and Nebraska by July 2014 had nearly 80,000 customers, well more than the 11,000 it predicted — but the state took control in December and liquidated the operation in March.

Co-ops in Louisiana, Nevada, Kentucky, Tennessee, Colorado, Oregon, South Carolina, Utah, Arizona and Michigan have said they would shutter next year, forcing customers to find other coverage.

State regulators shut the co-op in Colorado, leaving 83,000 customers hunting for other plans. Co-op officials said the state gave up on them too early and insisted they had a firm grasp on the market and were on a path to profitability.

“This is the most data that we’ve ever had,” said Julia Hutchins, CEO of the Colorado HealthOp. “We were stress-testing our rates.”

She said part of co-ops’ troubles can be traced to the White House, which decided under intense political pressure in late 2013 to let people with substandard plans keep that coverage instead of forcing them to enter the marketplace and buy plans that met Obamacare’s standards.

The about-face was an attempt to fulfill Mr. Obama’s promise that people who liked their plans could keep them under his signature law.

The result was hundreds of thousands of low-risk customers who stayed with their plans. Meanwhile, customers with higher health risks switched to co-op plans, unleashing a tide of claims.

“Limiting the marketplace just to people who hadn’t had health care previously was the single most impactful policy change that occurred,” Ms. Hutchins said.

Though the pent-up demand subsided, it was too late.

“We really saw it decline dramatically in the second year,” she said. “I think that’s why we were so frustrated and upset about the decision to shut us down.”

Analysts said that was just one of the factors involved.

“This likely contributed somewhat to plans seeing worse risk than expected in 2014, but it isn’t a smoking gun for the co-ops or other plans’ woes,” said Mr. Sloan, at Avalere. “It is hard to know the exact magnitude of the impact.”

‘Very slow but steady’

Even if the risk pool was worse than expected, many insurers — co-ops and other plans — underpriced their products in the Obamacare marketplace.

That, Mr. Sloan said, contributed to the administration’s announcement in October that plans would receive only 12.6 percent of what they thought they would get in 2014 risk corridor payments, which is money the government promised to cover losses in poorly performing plans.

Some of the bigger for-profit players could weather that hit because they had lines of business outside the exchange market, but not the co-ops.

“That is what hit them pretty hard,” Mr. Sloan said. “They’re all in on the exchanges.”

House Republicans investigating the swift fall of the plans said a mix of poor business sense and shoddy oversight led them over the cliff. It’s unclear whether taxpayers will recoup much of the $1.2 billion they have lent to the failed co-ops, they said.

Democrats say Republicans hastened the co-ops’ demise by slashing startup loans from $6 billion to $2.4 billion, prohibiting the co-ops from spending the money on marketing and failing to step in when risk-adjustment payments fell short.

No matter what the cause, the string of failures has taken its toll. Even in Maryland, where Evergreen is bullish about its future, new customers are leery.

“So what happened with all these other co-ops? Are you OK?” they ask, said President and CEO Peter Beilenson.

He said his operation survived because it took a “nimble tortoise” approach in its first two years, refusing to set prices too low and building its small-group line of business when Maryland’s state-run Obamacare website crashed in the first enrollment season.

“We’ve been very slow but steady,” Mr. Beilenson said.

In New York, however, Health Republic is shuttering, and it is facing an investigation into whether it misled auditors about its financial difficulties.

Health Republic did not return requests for comment about the investigation, though it pointed to the “systemic challenges” to the co-op program when it announced it was closing in late September.

Hoping to ease the way, New York officials say they have moved the deadline for affected customers to pick new plans from Nov. 15 to Nov. 30 and will enroll customers who do nothing into a plan on the state-run health care exchange.

Ms. Grech, the former Health Republic customer, said she rushed to submit an application to Empire Blue Cross Blue Shield by Friday the 13th.

“I’m kind of superstitious,” she said.

• Tom Howell Jr. can be reached at thowell@washingtontimes.com.

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