Health care success for midwest co-op proves its undoing


RED OAK, Iowa — A few days after Christmas, Lisa Lovig's doctor called with jarring news. The health insurer covering her cancer treatments had run out of money, and its future was at best uncertain.
“I was terrified,� said Ms. Lovig, 59, who has pancreatic cancer and relies on her insurance to cover frequent doctor appointments, tests and a litany of expensive drugs. “I didn't know what was going to happen to me.�

Her insurer, CoOportunity Health, was one of 23 nonprofit cooperatives created under the Affordable Care Act to generate more competition and choice in insurance markets dominated by huge for-profit companies. Many of these newcomers to the industry, seeded with hundreds of millions of dollars in federal loans, struggled to attract customers after the law's online insurance exchanges opened in 2013. But CoOportunity had seemed to flourish, with over 120,000 customers in Iowa and Nebraska — far more than the 15,000 it had anticipated — by the end of last year.

Its success apparently helped doom it. CoOportunity's many customers needed more medical care than expected, according to Nick Gerhart, Iowa's insurance commissioner, and it had priced its plans too low. After taking control of the co-op in late December, Mr. Gerhart decided last month that it could not be saved and asked a court to liquidate it. The co-op, he said at the time, faced more than $150 million in liabilities. That left its customers scrambling for new coverage, and providers wondering if millions of dollars in outstanding claims would ever get paid.

More broadly, it raised the question of whether one of the Affordable Care Act's biggest experiments in holding down insurance costs was in trouble beyond Iowa and Nebraska. The co-ops, which the law says must be “consumer governed� by boards elected by their customers, have received nearly $2 billion in federal loans, including $145 million that went to CoOportunity. They were initially supposed to receive $6 billion over time, but Congress later slashed the amount and virtually no funds remain.

“Certainly I'm very disheartened right now,� said Dr. David Carlyle, a family physician in Ames, Iowa, who served on a board that advised the Obama administration on how to set up the cooperatives. “If you can't have competition, you're going to go back to a world where a large percent of the population is unable to get health insurance.�

A recent analysis by the A. M. Best Company, an insurance rating agency, found that all but one of the co-ops reported financial losses through the third quarter of last year. Some analysts say that it is too early to predict the long-term viability of the co-ops, and that first-year losses were expected. But for now, the losses indicate that many were paying more in insurance claims and other expenses than they were receiving in premiums, a problem that seems to have hurt CoOportunity more than the others.

Perhaps viewing CoOportunity's experience as a cautionary tale, Tennessee's co-op, Community Health Alliance, stopped accepting new customers on Jan. 15, saying it had met its goal for the enrollment period. In a statement at the time, the Tennessee Department of Commerce and Insurance described the move as “a preventative measure to support the long-term viability of CHA and the protection of Tennessee consumers.�

Even before CoOportunity's failure, Republican critics of the health law had pointed to the co-ops as a risky use of tax dollars. Senator Charles E. Grassley of Iowa last month began an investigation into the federal government's role in CoOportunity's collapse. And on the floor of the House of Representatives recently, Representative Adrian Smith of Nebraska called the co-op's collapse “one more example of Obamacare's failure.�

CoOportunity executives declined to be interviewed, referring questions to Mr. Gerhart.

Dr. Carlyle said a unique set of circumstances had weakened the co-op. In addition to selling private plans through the exchange, it had agreed to cover new Medicaid enrollees under Iowa's expansion of the program. The co-op pulled out of the Medicaid program in October, saying many of the 9,700 enrollees it covered had significant health needs and were too expensive.

Another problem was that Iowa and Nebraska, with the Obama administration's permission, allowed people to keep old insurance policies that did not meet Affordable Care Act standards through 2016. These people tended to be relatively healthy because before the law took effect, insurers could reject customers who were sick.

That left the two insurers selling plans through Iowa's online exchange, CoOportunity and Coventry Health, to take on a disproportionate number of customers with expensive health problems. Mr. Gerhart said CoOportunity had paid for 21 organ transplants over the last 13 months, for example, and had seen “higher than anticipated� claims across the board. The co-op had increased its premium rates by 19 percent for 2015, but “at the end of the day, they needed capital,� he said.

Ms. Lovig was among the co-op's most expensive customers. She had been paying more than $1,200 a month for health insurance, but switched as soon as the exchange opened last year because her income was low enough to qualify for financial help under the Affordable Care Act. She and her husband, Barry, chose CoOportunity because of the price — their out-of-pocket maximum for Ms. Lovig's medical care would be $1,350 — and what seemed like generous benefits.

Over the year, the couple said, they grew to love the co-op's customer service, too.

“I would say they were the best insurance company we've ever been with,� Ms. Lovig said.

Mary Stuart, 63, of Omaha, had just signed up with CoOportunity in December when she learned of its financial crisis. Ms. Stuart had marveled at how many doctors and hospitals were in the co-op's network, she said.

“It sounded like an awfully nice deal,� she said, “and I guess it was too good of a deal.�

Ms. Lovig's switch to a new insurer, Coventry Health, has not been so smooth. Her new coverage did not start until Feb. 1, meaning she has to pay a new out-of-pocket maximum — $1,850 — before the new benefits kick in.

“The timing of it was a real nasty surprise,� said Mr. Lovig, who sat beside his wife in their living room here with a view of snowy cornfields.

Mr. Gerhart said the state guaranty associations in Iowa and Nebraska would cover outstanding medical claims for CoOportunity customers up to $500,000 a person. He and others, including brokers and enrollment counselors in the two states, had urged co-op customers to choose a new insurer by Sunday, when the latest open enrollment period ended. Roughly three-fourths had switched as of last week, he said.

CoOportunity customers were wondering whom to blame. Mr. Gerhart said it had become clear last summer that the co-op would need more federal loan dollars to stay solvent. He urged the Obama administration to let CoOportunity use federal funds it was not due to receive until later this year as collateral to get a third-party loan, he said, but to no avail.

The administration did lend the co-op $32.7 million in solvency funds in September, on top of $112.6 million it had already received. But it rejected another CoOportunity request, for $50 million, in December, awarding loans to other co-ops instead.

Asked why the co-op did not receive another loan in December, Aaron Albright, a spokesman for the Centers for Medicare and Medicaid Services, said only, “At the end of the day, the total funding requests we received from co-ops exceeded the amount available.�

“Any start-up business enters the market with inherent risks,� Mr. Albright said. “Not all succeed.�

Dr. Martin Hickey, chairman of the National Alliance of State Health Co-ops, said that based on the third-quarter results posted by the remaining co-ops, “I honestly, honestly don't expect another co-op to be taken over by a state regulator in 2015.�

Iowans, these days, have only one option on the exchange: Coventry Health. Mr. Gerhart said he was optimistic that more insurers would join before the next enrollment, which starts in October. Ms. Lovig, who was scrambling last week to confirm whether Coventry would cover the nurse who comes twice a month to refill her pain pump, said she hoped that would happen.

“It wouldn't have felt quite so bad if there were half a dozen others to choose from, or even three,� she said. “If there's absolutely nobody else doing it, then what you get is probably not going to be as good as it could be.�