united states project

Why did CoOportunity fail?

The insurance co-op's struggles raise questions about the efforts to foster competition
January 19, 2015

Just before Christmas, Iowa’s top insurance regulator announced he was taking control of CoOportunity Health, one of the 23 non-profit co-op health insurers created under the Affordable Care Act to inject competition into the insurance marketplace. The company, which had quickly amassed close to 120,000 policyholders in Iowa and Nebraska, is now officially in “rehabilitation,” but it faces potential liquidation.

This is an important story for consumers the Midwest, one that may have much broader implications. It’s also a challenging story. Several news outlets, such as the Des Moines Register and Omaha World-Herald, jumped on the case and have made a solid effort, outlining options for stranded policyholders and piecing together bits of what happened. But there is still a need to tell the bigger story and unravel the insurance failure: why it happened, what the larger context is, what it tells us about the prospects for these co-ops, how much the government can—or even really wants to—foster competition for big influential insurers, and what will happen next.

When Nebraska’s Lincoln Journal Star profiled CoOportunity in March 2013, the paper reported that the company intended to be a “market disruptor,” but cautioned, “how well it competes with the giants of the industry remains to be seen.” As of mid-2014, it seemed to be competing pretty well: the co-op had 114,000 customers, the second highest of any of the 23 co-ops, and looked like it might pose a real threat to the dominant carriers in two states where competition had been scarce. It offered lower rates on many policies and sold platinum coverage with generous benefits aimed at older customers. Other policies allowed three office visits with no copays, even for specialists, to attract younger ones.

By the fall, signs were piling up that the company’s finances needed an adjustment. In October, Iowa regulators authorized CoOportunity’s request to raise rates by 19 percent on average in 2015—up from an initial request of about 14 percent. The same month, the Register’s Tony Leys reported that CoOportunity was pulling out of its participation in Iowa’s version of Medicaid expansion, a so-called “private option” approach in which the state used federal funds to purchase private coverage for lower-income residents. “This is just all part of a re-calibration of our product line,” the co-op’s top executive said. Meanwhile, in a development that went largely unnoticed at the time, CoOportunity in September received a $32.7 million “solvency loan,” on top of the roughly $113 million in start-up capital it had received under the ACA.

In late 2014, there was another round of solvency loans. A Kentucky co-op received funds in November. A Wisconsin co-op, which had gotten a loan in September, got another one in December. CoOportunity, which was hoping for a lot more money, didn’t get any. How this decision was made remains a mystery. A spokesman for the Centers for Medicare and Medicaid Services, which administers the loans, told me and other reporters that “given the limited amount of funding available, CMS has to prioritize the externally reviewed requests.” (The agency has also said CoOportunity’s request was for more than the total money it had available to lend—perhaps officials thought the company was beyond their ability to save?)

But why the funding was “limited” is no mystery, though this angle has been mostly missing in the coverage. In early 2013, as part of the deal to resolve the “fiscal cliff,” Congress rescinded 90 percent of uncommitted loan funds that were available to support the co-ops. This was after an earlier cut had already sharply pared back the level of funding originally authorized in the ACA. CJR reported at the time how the 2013 law stopped the development of additional co-ops that were awaiting approval. It may have now contributed to CoOportunity’s failure too.

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There was still another source of federal funding—money CMS had for program administration. Some of it could have been transferred to CoOportunity, according to Martin Hickey, president of National Alliance of State Health Co-Ops, a trade association. But a more recent act of Congress—the “cromnibus” spending bill passed in December—cut those funds. And, said Hickey, “they explicitly prohibited CMS from using any of that money for any activity under the Affordable Care Act.” The double blow, with no expectation of sufficient federal funds to arrive anytime soon, prompted Iowa regulators to take over the company.

This raises the question of why CoOportunity needed federal money so badly in the first place. A Wall Street Journal editorial quoted in the Journal Star’s local coverage argues that “the co-ops have tended to deliberately underprice their policies” in an attempt to “game Obamacare’s rules.” CoOportunity’s business decisions and pricing/benefits plans definitely should face scrutiny, and as this episode continues to unfold hopefully the press will dig in in more detail. But some for-profit insurers have found they have underpriced too, and the law was designed to support new companies and cover early losses as they figured out how to set rates in the new marketplace. (The fate of so-called “risk corridor” funding, which kicks in later this year, should be on reporters’ watch lists, and not just for the co-ops.)

Meanwhile, there’s an argument that Wellmark Blue Cross Blue Shield, the dominant insurer in Iowa, has itself gamed the rules. As CoOportunity officials have noted, Wellmark took advantage of adjustments in the law to extend the old plans of its existing customers, who were healthy enough to get insurance before the ACA was passed and insurers were required to take all customers. The company also has also chosen so far not to sell its policies on the public exchange—the only place shoppers can use federal subsidies. That would tend to keep healthier patients at Wellmark and push relatively poorer, sicker patients to the exchange, where CoOportunity was one of only two companies selling policies—and it also likely led CoOportunity to grow more quickly, and require more capital, than it expected. This dynamic has gotten some press attention, and it deserves more. (Before being taken over by the state, CoOportunity also complained about other alleged hardball tactics from Wellmark, as the Register reported.)

As reporters in the heartland try to sort all this out, they are not always getting a lot of assistance. CoOportunity officials have not said much to explain what happened. According to Omaha World-Herald reporter Steve Jordon and Leys of the Des Moines Register, federal officials at CMS haven’t been much more helpful. “What I need is someone from the administration giving an explanation of what’s happened, and they haven’t done that,” said Leys. (This isn’t a new concern.) He took his complaint to Sen. Charles Grassley, an Iowa Republican. Last Tuesday, Leys reported, Grassley sent a letter to CMS asking for details about how loan decisions were made and criticizing CMS for a “lack of openness.”

Whatever Grassley shakes loose from CMS should provide some leads. Meanwhile, reporters in other co-op states should be taking a close look at public documents. What’s the story in Connecticut, Kentucky, Maine, New York, and Wisconsin, where co-ops have received solvency loans? What’s going on in Illinois, where records from the National Association of Insurance Commissioners showed in late July the co-op had only 3,400 policyholders despite receiving 6.4 percent of total federal funding?

Most of all, this episode should prompt us in the press to refocus on the question of competition in the insurance marketplace. The government was supposed to help foster competition, and competition from co-ops was supposed to help keep insurance rates down, especially in states with limited for-profit options. But CoOportunity–with less federal support than it planned on, and more and sicker patients than it expected–couldn’t compete with those industry giants after all. So if CoOportunity disappears, what happens next?

Related content:

The incredible shrinking insurance co-ops

Exchange Watch: The ongoing game of Spin the Rates

What’s health insurance really going to cost?

Trudy Lieberman is a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for CJR's Covering the Health Care Fight. She also blogs for Health News Review and the Center for Health Journalism. Follow her on Twitter @Trudy_Lieberman.