The Troubles of the Affordable Care Act’s Co-op Program

Contributor: Peter Beilenson, MD, MPH 
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image007.pngIn an attempt to encourage new competition and innovation in the health insurance marketplaces of the states, the Affordable Care Act (ACA) enabled the formation of non-profit health insurance cooperatives (Co-ops) in each state.  After Congress cut the initial $10 billion outlay by almost 75%, Co-ops started up in 22 states (Oregon had two).  From the beginning, the Co-ops faced a tremendous uphill battle against the large, pre-existing dominant insurers in their respective markets.  Obstacles faced by the Co-ops ranged from the administration’s inability to provide risk corridor payments to protect the insurers from losses in the early years of the ACA, limitations on raising capital to allow for adequate growth, prohibition on using the federal loans to advertise, and a terribly designed risk adjustment formula heavily skewed in favor of large carriers.

While over a million individuals purchased policies through the Co-op programs, the obstacles described above were too great to overcome for the vast majority of Co-ops.   As a result, as of September 15, 2016 only six of the original twenty-three Co-ops that went to market on January 1, 2014 were still in operation. This is unfortunate because by many measures the Co-ops were successful.  They unquestionably brought greater competition and choice to their respective state insurance markets; and, with that additional choice, they brought lower premiums: in states with Co-ops, the state average premiums were 7% lower than in states without Co-ops.

Along with the benefit to consumers of reduced premiums and increased competition, many of the Co-ops brought innovative products to their markets as well, with a particular emphasis on delivering value-based care.  As an example, our Co-op - Evergreen Health of Maryland - has a unique product for diabetic patients, where all out-of-pocket costs, including co-pays and deductibles are waived for all the services and testing that have been proven to reverse or slow down progression of the disease.  By removing financial barriers, this has encouraged patients to pursue the necessary care and improved their compliance with appointments with ophthalmologists, podiatrists, endocrinologists, and primary care providers.  Along with free access to glucose strips, hemoglobin A1C testing (used for measuring long-term control of blood sugar) and insulin, this will ultimately translate into better health outcomes and lower costs for these patients.

Another novel feature of Evergreen is the incorporation of patient-centered medical homes (PCMH) as a center for care. PCMHs serve as a hub where a patient’s care is integrated at one site. Evergreen has aligned the insurance company with a healthcare provider network (Evergreen Healthcare). Now used by about 20% of Evergreen Co-op’s members as their primary care provider, Evergreen’s primary care offices are robust centers staffed with a team of primary care providers, behavioral health coaches, and care coordinators, along with innovative technologies to provide state of the art healthcare.

Examples like these highlight the consequences of losing over three quarters of the original Co-ops.  The loss of one of the few competitors in these affected state markets (many states have only one or two competitors left operating on their exchange) is already contributing to the current rise in health insurance premiums around the country.  As premiums go up, it makes it even less likely that the young and healthy (who already are not participating in large enough numbers to provide a good risk pool) will buy insurance.  In short order, this will likely result in a death spiral of insurance premiums with the possible result of the collapse of the ACA.

What lessons can be learned from the failure of the Co-op program?  Many of the barriers to success that impede the progress of the Co-ops could have been remedied with a simple change of rules by CMS, the agency tasked with the execution of the ACA.  CMS should have amended the risk adjustment formula to create a level playing field for all the carriers. The current risk adjustment methodology creates additional issues for new carriers like Co-ops, as it favors large insurers with enhanced administrative capabilities with years of claims experience and data for their members. To improve the situation, CMS should have heeded the recommendations of small, new entrants into the health insurance markets, which suggested that growing plans be exempted from risk adjustment for the first 3-5 years, or alternatively, apply a “credibility based” approach to participation in risk adjustment, taking into account overall size and number of members that were not previously with the specific carrier, and place a cap on a plan’s risk adjustment transfer charge. Finally, the risk corridor program was another critical issue for the Co-ops — once hit hard by risk adjustment assessments, the Co-ops depended on full risk corridor payment. However, Congressional action dramatically reduced the availability of these payments, thus resulting in the closure of many of the original Co-ops.  A swift resolution to the current funding deficit for this program would go a long way to improving the chances of the remaining Co-ops to survive.

The Affordable Care Act represents an historic attempt to change healthcare in the United States. The Co-op program was an innovative approach to improve access to insurance by generating competition in the marketplace and emphasizing innovation and quality of care. The closure of most of the Co-ops and the wave of consolidation of large carriers currently underway, will lead to fewer choices and increased cost of healthcare coverage.  In the future, whether or not the Affordable Care Act remains in effect or not, any federal attempts to bring new competitors to the market must include strategies to level the playing field, or a similar outcome will ensue.


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Peter Beilenson, MD, MPH
Alex Blum, MD
Zaeem Lone

(The first author is CEO of Evergreen Health; the second author is the former CMO of Evergreen Health; the third author is a student at Johns Hopkins University.)