Risk adjustment, reinsurance and the controversial risk corridor program may not be enough to protect consumer operated and oriented health plans (CO-OPs) from the consequences of rapid growth, according to a recent report from the Robert Wood Johnson Foundation (RWJF).
"The organizations face considerable financial, actuarial and operational challenges in achieving both the scale and operating margins needed to be financially viable and meet the goals of the [Affordable Care Act]," wrote Scott Harrington, a professor at the University of Pennsylvania's Wharton School.
In total, the CO-OPs reported $164 million in risk corridor recoveries and $90 million in risk-adjustment recoveries, compared to nearly $1.4 billion in reported premiums, according to the report. All told, the CO-OPs averaged an underwriting loss of $17 for every $100 in premiums collected.
Maine Community Health Options was the only CO-OP to turn a profit in its first year, Harrington said in an interview with Wharton Business Radio. At the other end of the spectrum, Iowa CoOportunity Health was liquidated, as FierceHealthPayer previously reported.
At its height, Iowa CoOportunity Health had more than 90,000 members in Iowa and Nebraska. But its membership was much larger and sicker than anticipated, and the CO-OP simply couldn't pay its bills. Harrington's report noted that the CO-OP posted an operating loss of $45.7 million in the first 10 months of 2014 and did not expect to see its $125.6 million in risk-sharing money until the second half of 2015.
Now, fewer than 14,000 members in CoOportunity remain, according to LifeHealthPro. Guaranty associations in Iowa and Nebraska must pay about $80 million in outstanding claims, the article said.
The CoOportunity Health example illustrates the "challenges and the potential consequences of rapid growth in conjunction with unfavorable claims experience, despite protection provided by the risk adjustment, reinsurance, and risk corridor programs," Harrington wrote in his report.
Another report from insurance rating firm A.M. Best also questioned the financial viability of CO-OPs, noting that the organizations will need several years to operate before the industry can measure their true success or failure.
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