Maine's Community Health Options insurance cooperative
announced last week that it would cease writing new individual
health insurance policies on December 15, or December 26 for
policies it offers through the Healthcare.gov website. This announcement has
increased concerns regarding the solvency of other state
cooperatives established under the Consumer Operated and Oriented
Plan (CO-OP) Program of the Affordable Care Act (ACA) (as discussed
here and
here) because the Maine co-op was the only state co-op that had
reported profits for 2014.
On its website, Community Health Options blamed the
partial shutdown on "significant enrollment growth over the
last two years and higher than expected claims costs in 2015."
The company will, however, continue to offer group policies.
Prior to the Maine announcement, 12 of the 23 state co-ops
established under the ACA's CO-OP Program had ceased writing
insurance and/or entered insolvency proceedings. One of the key
causes of stress on the co-op system is that the co-ops were
expecting to receive a variety of payments from the federal
government to compensate them for taking on an unusually risky
subscriber population. A key component of that compensation is
referred to as "risk corridor" payments. The ACA directed
the U.S. Department of Health and Human Services to establish a
temporary risk corridors program for the years 2014 through 2016,
which the Centers for Medicare & Medicaid Services stated was designed to protect "against
inaccurate rate-setting by sharing risk (gains and losses) on
allowable costs between HHS and qualified health plans to help
ensure stable health insurance premiums." Essentially, the
federal government intended to reimburse certain costs in excess of
a mandated threshold. To date, however, the government has funded
only about 12 percent of risk corridor payments through collections
from other carriers. Unfortunately, the co-ops only learned of this
shortfall very late in the day.
Community Health Options had about $24 million in statutory capital
and surplus and over $100 million in assets as of September 30.
Although it had recorded a statutory profit of $7.3 million for
2014 and was the only ACA co-op in the black for that year, it lost
more than $17 million in the first nine months of 2015 on about
$244 million of premiums, even though it was still cash flow
positive. Statements by Maine's insurance regulator suggested
that worse-than-expected claim experience put the co-op into
trouble. He also indicated that the shortfall in risk corridor
payments, although not helpful, was not the driving force behind
the move to stop new individual business.
The full effect of the shortfall in risk corridor payments on
Community Health Options will not be known until the co-op files
its statutory financial statement in March 2016. If the
company's March financials show severe stress, Maine's
insurance regulator could potentially place the company into state
receivership proceedings (insurance companies are not permitted to
file bankruptcy).
Given the poor financial condition of the other 10 remaining ACA
co-ops, all of which reported losses for 2014 and eight of which
have reported losses so far for 2015, the shortfall in risk
corridor payments could be a serious blow to their solvency. Day
Pitney clients that are creditors of these state co-op insurance
plans may want to contact us for assistance in understanding the
risks that may lie ahead for these plans and their creditors.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.