Lone Profitable Affordable Care Act Insurance Co-Op Losing Millions

LEWISTON, ME – The lone health insurance cooperative to make money last year on the Affordable Care Act's public insurance exchanges is now losing millions and suspending individual enrollment for 2016.

         Maine's Community Health Options lost more than $17 million in the first nine months of this year, after making $10.9 million in the same period last year. A spokesman said higher-than-expected medical costs have hurt the cooperative.

         The announcement casts further doubt on the future of the cooperatives, small nonprofit insurers devised during the ACA's creation to inject competition in insurance markets. These co-ops immediately struggled to build their businesses. A dozen of the 23 created have already folded.

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         An Associated Press review of financial statements from 10 of the 11 surviving co-ops shows that they lost, on average, more than $21 million in the first nine months of this year. Those losses range from $3.9 million reported by Maryland's Evergreen Health Cooperative to $50.7 million booked by Land of Lincoln Mutual Health Insurance Co. in Illinois.

         "Clearly the remaining health care co-ops are in dire circumstances," said Robert Laszewski, a health care consultant and former insurance executive who has been a frequent critic of the Affordable Care Act. "I don't know how any of them can survive another year."

         The state-based co-ops were seen as a fallback option by liberals who initially wanted a government-run insurer to compete with for-profit companies that control the U.S. commercial coverage market.

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         The cooperatives, like other health insurers, have been hit by soaring medical and prescription drug costs. Plus they've had to spend money building a network of care providers, negotiating rates with them and then marketing their plans to customers. They have also received considerably less financial support than they expected from a federal government program designed to support insurers as the exchanges got under way.

         "It is probably impossible for a startup in the health insurance space to make any significant money in the first couple years," said Standard & Poor's analyst Deep Banerjee.

         Established players also have struggled to sell coverage on the ACA's state-based health insurance exchanges, which are a key element behind the law's push to cover millions of uninsured people. UnitedHealth Group Inc. recently reported deep losses from its exchange business and said it would decide next year whether to even remain in the exchanges in 2017.

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         But other insurers like the Blue Cross-Blue Shield carrier Anthem Inc. and Medicaid coverage provider Molina Healthcare Inc. have said they are making money off their exchange business.

         Maine's Community Health Options booked about $217 million in medical costs through the first nine months of this year, as its enrollment approached 71,000 people. Its costs so far this year are 72 percent higher than what the insurer recorded all of last year.

         Spokesman Michael Gendreau said the company decided to freeze individual enrollment for 2016 in order to ensure "that we are able to provide the same level of care and service that we provided last year."

         He said the cooperative was not in danger of closing.

         Community Health Options is spending 89 percent of the premiums it collects on medical costs and claims.

         Laszewski, the health care consultant, said small co-ops probably don't want to spend more than 85 percent of their premiums on claims. Aside from paying claims, insurers need to collect enough revenue to run their business.

         Eight of the 10 surviving co-ops reviewed by The Associated Press were spending 89 percent or more of their premium income on medical costs.

         Banerjee, the Standard & Poor's analyst, said he expects more co-ops to struggle heading into 2016, but it's hard to say how many will survive or fail.

         "What it comes down to is they need to turn a profit very quickly because the funding source is drying up," he said.

         The closing of additional co-ops would mean fewer insurer choices for customers shopping on the ACA's exchanges.

         The exchanges are currently accepting applications for coverage that starts Jan. 1, but that enrollment period will end Dec. 15.

         This story has been corrected to show that eight of the 10 surviving co-ops reviewed by The Associated Press were spending 89 percent or more of their premium income on medical costs, instead of seven of the 10.

         – by AP Reporter Tom Murphy

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