OIG Says Most COOP Health Plans Are Underperforming

The communes and the co-ops of the 1960s are now mostly a distant memory. And it could soon be that way for many of the COOP health plans mandated by the Affordable Care Act (ACA) and currently offering coverage in many states.

The Office of the Inspector General (OIG), has concluded that many of the consumer- oriented and operated plans have fallen far short of their projected financial performance. In a recent report, it surveyed the finances of 23 COOPS that have been operating throughout the United States. They were established under the ACA with the intent of creating non-profit competitors in regions of the country where larger commercial health plans tend to predominate. The Centers for Medicare & Medicaid Services have granted COOPs $2.4 billion in short-term and long-term loans to get them operating. "Loans were to be awarded only to entities that demonstrated a high probability of becoming financially viable," the OIG said in its report.

The COOPs, like other commercial health insurers, cover basic laboratory and pathology services at negotiated rates.

One COOP in Iowa and Nebraska, CoOportunity Health, was taken over by state regulators late last year and is currently in the process of being liquidated. It had reported losses through the third quarter of last year of nearly $40 million—the highest of any COOP. Altogether, the plan had about 120,000 covered lives, all of whom will have their coverage terminated at the end of August if they did not switch health plans. Another COOP, the Louisiana Health Cooperative, announced that it would exit the market at the end of this year.

COOPs have struggled with enrollment, which nationwide have reached less than 600,000, a fraction of the 8 million Americans who enrolled in coverage through state health insurance exchanges last year, according to the ratings agency A.M. Best. It issued a report earlier this year expressing concern that some of the COOPs were at risk of becoming financially impaired—a sentiment echoed in the more recent OIG report.

"Most of the (COOPs) we reviewed had not met their initial program enrollment and profitability projections as of December 31, 2014 ... specifically, member enrollment for 13 of the 23 CO-OPs that provided health insurance in 2014 was considerably lower than the COOPs' initial annual projections, and 21 of the 23 co-ops had incurred net losses as of December 31, 2014," the OIG said in its report. It noted that some COOPs suffered as a result of the technical issues connected with the launch of the healthcare.gov exchange. Others also had issues obtaining licenses to actually sell insurance—in one case, a COOP received its license just days before the open enrollment period, and therefore could not offer its plan on the state health insurance exchange.

Patrick Kelly, a senior auditor with the OIG, said in a podcast that half of the COOPs had less than 50 percent of their projected enrollment, while five of them had less than 10 percent of their projected enrollment.

The nine COOPs that exceeded their enrollment projections did so primarily because they offered competitive premiums, according to the OIG.

The OIG recommended that the CMS place underperforming COOPs under enhanced oversight and establish corrective action plans; work with state regulators to identify COOPS that are underperforming and provide assistance; and provide specific guidelines to determine when a COOP is no longer financially viable.

Some COOP plans have also decided to take greater initiative in building their enrollment, announcing plans to lower rates and offer coverage to individuals outside of the state insurance exchanges.

Takeaway: It has been a rocky financial start to most of the nation's consumeroriented and operated health plans.