An October Surprise For Co-Ops

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Leonard Kish sits down with Julia Hutchins, CEO of the Colorado HealthOP, to talk about the recent surprise when Co-ops were informed the federal government would pay just 12.6 percent of the money they’d requested …

LK: Julia, tell me a little about the history of CO-OPs in general and the Colorado Health-OP in particular. When were they formed? Why were they formed?

JH: The CO-OP program was an important part of healthcare reform. The CO-OPs were part of a bipartisan compromise to ensure that there was competition in the individual and small group insurance markets and to ensure that there was competition on behalf of consumers. CO-Ops have enabled lower costs and more responsiveness to consumers as the market moves from one that was previously medically underwritten to one where anybody can buy health insurance regardless of their health status.

LK: So, it was really for those people a little bit in between Medicaid and people who can buy insurance through plans on the exchange. So, tell us about how the CO-OPs are different and who qualifies for them.

JH: Prior to healthcare reform, anybody regardless of income who had a preexisting health condition could not buy insurance. The CO-OPs played an important role in helping to serve people who had been previously been shut out of insurance and were either uninsured or underinsured. There was a lot of risk for the insurance market: how do you know what the cost of care is going to be for people who have never had insurance before and how do you price for that? These individuals are the primary population that the CO-OPs are set up to serve. They are individuals who are buying insurance on their own, entrepreneurs, people working in fast food or working in retail, those without access to employer-based insurance. While the existing insurance industry tiptoed into this new market, the CO-OPs embraced it and have helped ensure that there are low cost and affordable options for people who now, finally, have access to the security and benefits of health coverage.

LK: Tell us about the financing of the CO-Ops, they were funded by the Federal government and the idea is that they could become self sustaining over time? In the coming years how has the funding situation changed and what happened?

JH: That’s right. The CO-OPs were funded through a low interest Federal loan similar to how the rural electric CO-OPs were funded. These are low interest loans that will be paid back over a long period of time – 15 years. There was recognition that, like any startup business, CO-OPs would take some time to be able to pay back the initial funding. While the CO-OPs do have Federal funding, we are private/non-profit companies that are governed and powered by our membership. Healthcare reform also put protections in place to help stabilize the insurance marketplace and adjust for risks that CO-OPs and other plans took on by serving people who had a lot of pent up demand for healthcare.

Until last week, we were given every assurance from the Federal government that they would make good on their obligations to cover these payments to offset the high costs that we and other carriers serving individuals incurred in the first year – 2014.

LK: Did something change? What exactly happened?

JH: Last Thursday we received notice that the Federal government would only pay 12.6% of its obligations under one of these programs. What that means for us is that we would not be receiving $10 million in capital that we’ve been counting on. More significantly, because this is a three-year program, it called into question whether Congress or the administration could make good on their commitment in the future years of this program.

LK: This is just a shock to all of the CO-OPs?

JH: This is a shock.  While there was certainly conversation around whether Congress could make good on their payments and speculation about that, all of the internal conversations we had with the administration assured us that they would make good on their payments. This is really important because we took this into consideration as we were developing our rates and looking at our performance. If we had heard something different, we would have acted differently. Now we’re at the 11th hour with a significant blow to our capital requirements. This puts our success and the success of many other regional health plans in jeopardy.

LK: Do you have a sense in what exactly happened? Why there was a change? Is it related to the government shutdown talk and budget tactics of some sort?

JH: It is budget tactics and this is one of 3 programs that disadvantage small insurers. There was a budget politics change that happened last year that changed the nature of this program. That change called for the program to be budget neutral over three years. Requiring the program to be budget neutral means that if there is a year where there are high losses, the program can’t make good on its obligations. The bigger question and problem is that this is a 3 year program, so what happens in one year has no bearing on what happens in future years. However, the Federal government set a precedent this year by only paying out 12.6% which doesn’t give confidence to regulatory accountants that the money will materialize in future years. But for us, by looking at insurance pricing going into 2016, we’re seeing double digit price increases and the likelihood that there will be profits in future years is very real. For us, this is a big deal because it’s setting a precedent about how the receivables should be treated in future years.

LK:  Where does this lead you in the short and long term with the 80,000+ lives you’re covering right now?

JH: It really leaves us and the state in a tough place. This is bigger than us, Colorado Health-OP serves40% of the people who purchased health insurance in the marketplace and we have partnered with a lot of providers and have been providing good care to our members and will be continuing to do that for the rest of the year. We’re financially healthy, but for this change in capital.  We’re looking to all parties locally to find out what we can do, how we can treat future receivables, talking with investors who are interested in supporting us and our business model and going for it. This is really about being able to offer low-cost, high-quality healthcare to consumers in Colorado. We’re still moving forward, still trying to find a way out, but this really did hit us hard because it was so unexpected.

LK: You’ve said that you’re a healthy and thriving business. Does that build on the idea that you expect to be a sustainable business starting next year. Is that right?

JH: That’s right. It is really remarkable from a startup perspective; we have a strong business model that is premised on member and provider engagement and high-value care. We have built a strong network and partner locally with providers who are also committed. Finally, and most importantly, our members are engaged. People want a different kind of insurance company and to be able to participate in their own healthcare. They want lower cost insurance.  We have a lot of people who are invested in what we’re doing and are looking for a way to continue to have a vehicle to make significant change in how healthcare is delivered and paid for.

LK: Is every CO-OP going through the same struggle right now? Is Colorado different in any way?

JH: Any small plan that serves a large number of people who are buying insurance directly is being hit by this. Some may be CO-OPs or other small regional plans. This certainly hits CO-OPs harder because we were formed to solve this problem and help bring healthcare to people who haven’t had it before. We’re all in different circumstances and how it impacts us is very different.

The longer-term implications are bigger than just CO-OPs. It has to do with competition in health insurance markets and really finding innovative ways to keep prices down so that people can afford to buy insurance.

LK: How are you driving engagement with your members?

JH: First, around their own health.  We have a strong technology platform where our members engage with us helping to find high-value and low-cost providers. More than that, they’re engaged in their own health. Over 40% of our members have engaged in completing a preventative health action this year. That may involve going in to get their annual wellness exam or participating in an online digital engagement tool based around behavioral health. We offer a lot of different ways for our members to get engaged in their own healthcare, in our company and more broadly in the health policy debate. We’re a big vehicle for people to be able to speak up for what they’re experiencing in healthcare and make it work better for them.

LK: Are there financial incentives for them to get engaged?

JH: There are. If our members complete three health actions (they go to the doctor, have a wellness exam, get lab work done, complete an online survey) they get more benefits. In one of our plans, members get a $900.00 debit card that they can use for any healthcare services or alternative medicine. It’s really premised on giving people back for doing things that are good for them.

LK: What would you ask people to do to help your situation and to make sure that the Colorado Health OP keeps operating and innovating on the solutions?

JH: We’re encouraging all of our members and supporters to call their congressional representatives and let them know how much we mean to them really encourage them to be able to find a solution to the risk corridor funding gap. This is really important to Colorado, and to our members and provider partners. We have a call-to-action on our website (www.cohealthoporg). I’m encouraging people to get the word out and to tell people how important we are to making healthcare cost less and work better for them in Colorado.

Leonard Kish is a principal with Viva-Fi consulting. 

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3 replies »

  1. Leonard’s interview flags the significant risk that federal government has created for the health co-ops around the country by insisting that its Risk Corridor payments, meant to help get the health co-ops off the ground, be “revenue neutral”. The fact that Risk Corridor claims were greater than incoming payments in 2014 should not have been unexpected. The underlying logic of a Risk Corridor program is that insurers moving into a new market (in this case Co-ops offering insurance to the previously uninsured) should be given some protection against unknown claims patterns when setting premium levels in the first few years. The Risk Corridor is meant to allow them to “thread the needle” in pricing between offering plans that are so expensive that no one buys them and too cheap that the true, but initially unknown, risk level is not covered off properly. This is not meant to be a permanent subsidy for insurers and is certainly not meant to create a moral hazard by encouraging them to take too much risk. Rather, it is meant to enable them to get into a new market successfully to serve public policy.

    The health co-ops already faced significant working capital issues by the inherent structure of the three risk sharing programs. For instance, they have to wait until the end of 2015 to get 2014 payments back from the federal government pursuant to these programs, even though they have had to pay out claims all along during 2014. This creates a cash squeeze for them, even if they somehow managed to get pricing right in 2014 in the absence of any data to guide that pricing. Now that the federal government is also going to limit those payouts to 12.6 cents on the dollar, many exchanges may well be pushed into insolvency, even though they are doing everything right.

    The government’s 12.6% payout ratio amounts to changing the rules of the game after the game has started. This is particularly unfortunate to me because many of the co-ops are doing truly innovative work around customer-centricity, promotion of health and value-based healthcare.

    I agree with Julia that we all need to urge HHS to change its stance on payout ratios and make full dollar for dollar payouts for the 2014 Risk Corridor claims from the co-ops. I also urge Governor Hickenlooper’s office and the Colorado state Department of Insurance to ensure that the CO HealthOP is allowed to continue operating. My wife and I have been customers, and we were very happy with the local nature of this insurance. Furthermore, I know that the HealthOP is poised to launch many new, innovative initiatives that will help make many more Coloradans healthy in affordable ways.

    We cannot afford to lose this company!

  2. Great interview, Leonard.

    Here’s my follow up. What has to happen on the federal level for this to change?

    What are the roadblocks?

    / j

  3. I thought that the CO-OP inclusion in the PPACA was to have health plans that could have physician, nurse and patient owners so that we could avoid the strictures against doctors working for corporations (as in California) and nurses being controlled by unions. In other words, these were to be like giant Accountable Care Organizations where the providers AND patients would all be owners , and hence could have much lower salaries and premiums but would be otherwise be compensated by equity. That was my thinking. I guess I was totally wrong.

    You say they were established to fill a competitive vacuum in the individual and small group insurance market.

    Are we both missing something? What is their ownership structure?