Colorado HealthOP will shut down, leaving 83,000 members scrambling for insurance coverage and taxpayers on the hook for about $72 million in federal loans used to start and support the co-op.
The Colorado Division of Insurance dropped HealthOP from the state insurance exchange because it no longer meets state capital-reserve requirements.
Without the ability to sell 2016 plans, the low-cost insurer is effectively out of business.
“It is a key function of the Division of Insurance to make sure that insurance carriers are financially stable enough to pay the claims of their policyholders. While Colorado HealthOP can continue to pay claims for the rest of 2015, we cannot allow it to sell or renew policies on the exchange for 2016,” state Insurance Commissioner Marguerite Salazar said in a statement.
HealthOP is the seventh co-op in the nation to collapse. Similar nonprofit insurers have failed in Kentucky, Louisiana, Iowa/Nebraska, Nevada, New York and Tennessee.
Colorado HealthOP’s financial health was rocked this month when the federal government said it would not make the full “risk-corridors” reimbursements promised by an Affordable Care Act program to help insurers take on the sickest, most expensive members.
The risk-corridors program is intended to limit how much money an insurer can lose or gain on policies sold through state health insurance exchanges. The government will reimburse some losses but also expects plans that make money to pay into the program.
In 2014, insurers paid about $362 million into the program but asked for $2.87 billion to cover losses.
The Centers for Medicaid and Medicare, or CMS, said insurers would be reimbursed 12.6 percent of what they were owed for the program in 2014, about $362 million of the $2.87 billion claimed. HealthOP received only $2 million of the expected $16.2 million.
This left HealthOP facing a shortfall that CEO Julia Hutchins said then might leave the co-op unable to meet reserve requirements.
Those reserves are intended to help insurers weather very high-cost claims, state insurance officials said. By the end of this year, Colorado HealthOP will have no such rainy-day fund and will be about $34 million in the red, the regulators said.
“Our decision is a direct result of this shortfall by CMS, and I sympathize with the HealthOP. But the division has requirements, and it has to protect consumers,” Salazar said.
Consumers cannot buy new HealthOP coverage or renew existing plans for 2016. Open enrollment begins Nov. 1, at which time customers will have to start looking for new coverage.
A spokesman for Connect for Health Colorado, the state health insurance exchange, said the marketplace has more than 10 companies offering plans in 2016.
The financial viability of all other Colorado carriers on the exchange has been reviewed, and no others appear to be at risk, the insurance regulators said.
“I’m not sensing there is going to be immediate red flags or alerts going on,” said Michele Lueck, CEO of Colorado Health Institute, a nonprofit policy research group
.
Those products offered by the other insurers, she said, likely will be more expensive, but health care analysts already were anticipating a “rebalancing” of rates.
With HealthOP out of the marketplace, advance premium tax credits, which were set using the co-op’s plans as a baseline, will have to be recalculated. The tax credits flow directly to insurance companies to lower out-of-pocket premium costs for customers meeting certain income requirements.
HealthOP has been under state supervision since February, when the Division of Insurance identified the potential for claims to outpace the co-op’s ability to pay them, financial affairs chief Scott Lloyd said.
The co-op’s aggressive strategy of slashing premiums resulted in a quintupling of its member base, which accounts for about 40 percent of policies sold on the health exchange and 2.5 percent of all insurance policies in Colorado. To help support the growth, HealthOP took on about $72 million in low-interest federal loans.
Other Consumer Operated and Oriented Plans around the country took the same tack, which was intended to create a more competitive marketplace.
However, there were risks, analysts said. If the loans were to run out, or if the carriers were hit with unexpectedly large claims, the small co-ops would likely not have the financial resources to survive, analysts told The Denver Post in March.
At the end of 2014, HealthOP reported a net loss of $23 million and had about $24 million in reserves, putting the insurer at 700 percent of the risk-based capital requirement, according to the co-op’s annual financial report. That $24 million reserve included the anticipated CMS payments, Lloyd said.
When the CMS money didn’t come through, HealthOP’s 2015 income projections were disallowed, resulting in the co-op landing in a hole, he said.
“They were contending their cash flow was sufficient,” Lloyd said. But “cash flow can be taken out from large claims hits in one month. What matters to us is solvency.”
HealthOP said Friday that projections by an independent actuary showed the insurer would make money in 2016, be able to add to its reserves and pay down the federal loans.
Without the ability to sell new policies, HealthOP is likely to default on the loans, the co-op said Friday. (Days before the risk-corridor announcement, U.S. Sen. Cory Gardner requested an investigation into the solvency of Colorado HealthOP, questioning the organization’s ability to repay federal loans.)
Colorado HealthOP’s board of directors has asked for an independent ombudsman to assist through the shutdown.
In the meantime, its 79,877 individual and 2,908 small-business group policies remain in effect.
“We will make good on all obligations and continue to pay claims,” Hutchins said in an interview Friday morning.
Alicia Wallace: 303-954-1939, awallace@ denverpost.com or @aliciawallace
The Associated Press contributed to this report.
