The closures of over two-thirds of the 23 original Consumer Operated and Oriented Plans (CO-OPs) created under the Patient Protection and Affordable Care Act (ACA) have negatively impacted access to health insurance for many individuals, and have caused disruptions within the health insurance markets previously served by the plans. Due to market-based factors (e.g., competition from larger health insurers) and legislative factors (e.g., the risk adjustment program), the struggles of many CO-OPs have left numerous individuals and small markets without adequate access to, and competition for, health insurance.¹ Additionally, the implementation and enforcement of the ACA’s risk adjustment program, has prompted certain CO-OPs to file suit seeking to delay payment of, or receive payment for, monies owed under this program. Although non-ACA specific factors have contributed to the struggles faced by many CO-OPs, the volatility of the CO-OP program may nevertheless represent a hurdle for government regulators to overcome in the ACA’s overall effort to improve access to, and competition in, the health insurance market. This second installment of the two-part Health Capital Topics series on ACA CO-OPs will discuss the implications of the CO-OP struggles on the broader health insurance market and how, if at all, these closures reflect on insurance reforms under the ACA.

As discussed in Part One of this series, 16 of the 23      CO-OPs formed under the ACA have ceased offering health insurance to their enrollees;² these actions have caused significant difficulties for both state insurance regulators and the enrollees of such plans. In ceasing operations, when any health insurance issuer, including a CO-OP, is declared insolvent, the insurance commissioner of the state in which the insurer operated will be appointed to facilitate the liquidation process “in an orderly fashion.”³ Subsequently, the members of the closed CO-OP will likely transfer over to either: (1) a solvent health plan; or, (2) a state guaranty association (GA).⁴ GAs are established in all 50 states and the District of Columbia, and “protect customer insurance policies issued by insolvent insurance companies, subject to certain benefit limits and various exclusions specified by state law.”⁵ If the members of a CO-OP are transferred to the state’s respective GA, the GA may then either: (1) continue to administer the closed CO-OP’s policies; or, (2) implement replacement policies for the plan’s enrollees.⁶

However, some of the members formerly insured by the CO-OPs that are no longer operational did not receive the option to transfer over to their state’s GA, because some CO-OPs failed to receive guaranty fund protection due to licensing issues.⁷ For example, Health Republic Insurance of New York (Health Republic), which had over 215,000 members at the time it ceased operations, was not covered by New York’s GA, as GA coverage in New York requires health insurance claims to arise from life insurance policies, not policies specific to health insurance coverage.⁸ For the individuals previously covered by Health Republic, which made up nearly 20% of the market on New York’s individual exchange established under the ACA, this meant that no state GA handled the winding down process of the CO-OP, forcing the enrollees of the plan to personally find and register for new health insurance policies prior to the CO-OP’s closure.⁹ In contrast, the 120,000 members previously insured by the Iowa/Nebraska CO-OP, CoOportunity,¹⁰ were able to work with a GA to during the winding down process of the CO-OP, allowing members to avoid a gap in coverage during the liquidation process of CoOportunity without rushing to locate and register for new coverage.¹¹ Further, the GA administering the winding down of CoOportunity processed and covered over $110 million of hospital and physician claims.¹²

With CO-OPs enrolling over one million members in 23 states prior to the recent closures, many enrollees of these plans have been forced to acquire new health insurance coverage.¹³ For example, Meritus Health Partners Service, the CO-OP operating in Arizona, enrolled 59,000 members¹⁴ whose plans were honored through the end of 2015.¹⁵ At the time of Meritus’s closure, eight companies within the CO-OP were expected to offer nearly 120 individuals plans, and three companies were expected to offer approximately 15 small group plans.¹⁶ Similarly, Colorado HealthOP, the CO-OP operating in Colorado, enrolled 82,785 members, and during 2015 “had the lowest prices in eight of Colorado’s nine rating areas.”¹⁷  As stated in the announcement of its closure, the CO-OP would honor health insurance plans through the end of 2015, after which time members would have to switch to another health plan.¹⁸ Although a majority of the seven, still operational CO-OPs were profitable in the first quarter of 2016, risk adjustment payments may cut into this profit, potentially endangering the viability of these CO-OPs.¹⁹

In addition to effects on individual consumers, the local markets in which CO-OPs operated are likely to see changes regarding premium pricing for plans on the ACA exchanges.²⁰ According to a report by the United States Government Accountability Office (GAO), 2015 premiums offered by CO-OPs were lower than both 2014 premiums offered by CO-OPs, and 2015 premiums offered by other issuers.²¹ For the majority of the 20 states with a CO-OP health plan on their respective ACA exchanges in the 2014 and 2015 open enrollment periods, the GAO found that “the state-wide average monthly premium for a 30-year-old individual to purchase a CO-OP silver health plan was lower for 2015 than for [2014].”²² Specifically, consumers purchasing CO-OP plans in fourteen states experienced decreases in average monthly premiums, ranging from $1.47 per month in Kentucky, to $180.44 per month in Arizona.²³ Similarly, in comparison to other health insurance issuers, for the 23 states with a CO-OP health plan on their respective ACA exchanges in 2015, the GAO found that “the average monthly premiums for CO-OP health plans in all tiers were lower than the average monthly premiums for other health plans for 30-year-old individuals in most rating areas.”²⁴ For all five tiers of health coverage, i.e., bronze, silver, gold, platinum, and catastrophic, “the average premiums for CO-OP health plans were lower than the average premiums for other health plans in more than 75 percent of ratings areas where both a CO-OP and at least one other issuer offered health plans.”²⁵ With the closures of more than two-thirds of the 23 CO-OPs, the availability of health insurance coverage at premium rates lower than other plans on the ACA exchanges may be negatively impacted during the next open enrollment period.

Certain CO-OPs have resorted to litigation in an effort to maintain viability. As stated in Part One of this two-part series, the enforcement of the risk adjustment program by the U.S. Department of Health and Human Services (HHS) disproportionately burdened many CO-OPs with risk pools composed of beneficiaries in better health relative to the risk pools of other insurers, as the program required such entities to make payments to other, larger insurers with less healthy patient pools.²⁶ Many CO-OPs partially attribute their closure to the enforcement of this program,²⁷ with a few CO-OPs filing lawsuits against HHS arguing that the methodology utilized in calculating risk adjustment payments is incorrect.²⁸ Notably, one of those CO-OPs, Evergreen Health Cooperative, in Maryland, failed to receive a time extension on paying its $24 million owed under the risk adjustment program during the proceeding of its lawsuit.²⁹ The CO-OPs in New Mexico and Massachusetts, New Mexico Health Connections, and Minuteman Health, Inc., respectively, filed similar lawsuits, asking the courts to “[d]eclare that the Risk Adjustment methodology applied… for years 2014 and 2015 and intended to be applied going forward is arbitrary, capricious, and contrary to law.”³⁰ The lawsuits are currently pending.

With the cascading closures of CO-OPs that occurred, and may continue to occur, those insured by the CO-OPs, as well as the local markets in which the CO-OPs operate, may experience disruption in coverage and competition. More broadly, the recent history of the CO-OP program may serve as another reflection on how the ACA has been subject to numerous forces in its implementation, whether through market forces, regulatory decision-making, or Congressional alteration. Such forces may not be directly attributable to the ACA, but they have nevertheless impacted the satisfaction of the goals of this landmark legislation, such as improving access to quality and affordable health insurance coverage.³¹ Future proponents of healthcare reform efforts may be prudent to view the struggles of the CO-OP program as a reflection of the difficulties of implementing landmark legislation, such as the ACA, due to the numerous regulatory and market-based pressures that may influence whether the goals of such laws are ultimately satisfied.