This article originally appeared at Healthcare Dive on Jan. 27, 2016.
With just about half of the originally created state health insurance co-ops still standing, the spotlight was shone last week at a Senate hearing on how the CMS is monitoring and correcting their business this year, as well as what efforts it will take to recoup federal funding from the failed plans.
With much of the focus devoted to how to shore up the co-ops that continue in the marketplace, the hearing was a positive development for them, says Joel Ario, a managing director at Manatt Health Solutions and former director at HHS who helped establish the exchanges.
If the remaining co-ops are likely to see success, two things should happen, though they are both challenging, Ario told Healthcare Dive.
The first is the completion of risk corridor payments, he says. “That’s the immediate precipitant I think of the failures of the co-ops just last fall.” He notes many co-ops had priced in such a way they were owed significant risk corridor payments, and when they only received 12 cents on the dollar, it was a major hit to their bottom lines. He adds Congress is still obligated under law to make those payments, so even if it cuts off the immediate funding, the requirement still remains.
The second issue to be addressed is risk adjustment, which was designed to discourage risk selection by carriers, help create more market stability, and make it easier for new entrants, “when in fact, risk adjustment has tended to operate the opposite way,” Ario says.
He argues it has mostly hurt the new entrants, in particular the co-ops, which enter the market without full actuarial data and have therefore been more likely to under-price their products. As a result they’ve been getting more of the young and healthy consumers who are willing to try unknown health plans, while older and sicker consumers have tended to select better-known plans despite their higher prices. “So the newer, smaller entrants are the ones tending to owe money to the larger and more established plans,” Ario says.
What ado about risk adjustment?
Because it’s hurting new entrants, there may be ways to tweak that formula, Ario says. One idea on the table, he says, is capping risk adjustment payments where they affect solvency.
Another possibility being discussed is putting out even more loan money, as had been planned before the amounts were cut back, Ario says. However, he warns CMS would have to be careful they weren’t simply prolonging the co-ops with their existing issues rather than fixing them.
As for the recovery of the federal loans given to the failed co-ops, Ario is not highly concerned. Though they sound large in the abstract, when considered against the overall program, the loan amounts are relatively small sums of money. “I don’t look at that as a major factor,” Ario says.
How soon is now?
In terms of what happens next, Ario suggests the ongoing monitoring will be high and further analysis will come with the end of open enrollment, as regulators look at what level of enrollment they’re taking on for the year.
Speaking as a former insurance commissioner, Ario notes, “You don’t want to grow too fast, as did some of those that failed.” He says the co-ops should be aiming for a measured form of growth, as too much too quickly can be destabilizing. Regulators will be watching how they handle it, he says, and some co-ops have already voiced their intent to better manage growth, such as with caps to limit enrollment.
Ario isn’t ready to predict long-term success or failure for the co-ops. “It’s too early to say. I still am bullish on the exchange markets overall. I think they’ve accomplished a tremendous amount in the first three years. But the original expectations–I think we now look back and say they were too high.”
He suggests, however, while the exchange market is still not as good as the employer market, the situation is “vastly” improved from the pre-ACA world and the law continues to move forward and work on an evolutionary basis. “It’s more like a long hard slog than a quick victory,” he says, “but still, in my 20 years watching the individual insurance market, it is so much more stable and there are better options for people than there ever were before the ACA.”