Health Policy$ense

A Look at the Financial Performance of the CO-OPs

With the regulatory takeover and subsequent liquidation of CoOportunity Health, many analysts and policymakers are concerned about the stability and viability of the 22 other CO-OP plans.

In this new LDI/RWJF Data Brief -- part of our LDI/RWJF Data Brief series -- Scott Harrington goes right to the source: the quarterly National Association of Insurance Commissioners financial reports to state insurance regulators. He reviews funding, enrollment, underwriting results, and rates.

As reported in the September 30, 2014 financial reports, the CO-OPs have 521,000 members, consisting of 391,000 with individual coverage (both on- and off-exchange) and 123,000 in groups. The plans vary widely in enrollment, as shown below:

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Harrington provides a glimpse into the underwriting results among the CO-OPs, using data from NAIC reports for the first three quarters of 2014. He calculates the ratio to premiums of three categories of expenses: medical claims, claim adjustment, and general administrative/marketing/overhead. Importantly, the premiums include estimated receivables from risk corridors and risk adjustment.

The bottom line? The “combined ratio,” across all plans, is 116.8%, which corresponds to an underwriting loss of about $17 per $100 of premiums. Each plan’s ratios are shown below:

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What to make of these data? I had four takeways:

1. Starting an insurance plan is hard to do. Start-up expenses are high (and often fixed), and low enrollment leads to high general expense ratios, at least at first.

2. One insolvency does not represent failure of the entire CO-OP program. As Harrington notes, “That CO-OPs would face formidable actuarial, operational and financial challenges, with a significant likelihood that some would not become financially viable, has been recognized from the program’s initial planning stages.”

3. The ACA’s risk-sharing programs (the “3 Rs”) have been especially important to these start-up plans. No plan reported any estimated net payment to the programs; about one-third estimated recoveries from risk adjustment, and another third estimated recoveries from the risk corridor program.

4. While it’s not time to push the panic button, CoOportunity Health’s insolvency is a cautionary tale of the challenges these new plans face in pricing competitively and growing enrollment, without prior claims experience. As Harrington notes, “The experience highlights the need for close monitoring and oversight of CO-OP pricing and enrollment growth going forward.”

Harrington, PhD, is a Professor of Health Care Management and Insurance and Risk Management. The brief has many more details on CO-OP funding, 2014 rates, and 2015 rate changes.