CT’s insurance CO-OP sticking around, but still a work in progress

Because it has no plans to shut down and is marketing health plans for 2016, Connecticut’s health insurance “CO-OP,” HealthyCT, is already more successful than more than half of its counterparts across the country. But the Wallingford company still has a ways to go to achieve long-term sustainability.

The nonprofit insurer lost $28 million in 2014 and lost $9.5 million in the first six months of this year. CEO Ken Lalime said early losses are not unusual for a new company, and said HealthyCT has the capital to get through the initial, unprofitable years.

“We’re very confident that we’re in a good position,” Lalime said when asked about the company’s viability.

Asked when the company needs to start turning a profit, Lalime said probably in the next year to 18 months.

“I think we have the capital to make it through that time without a difficulty,” he said, adding that he expected the company would become profitable in that time.

“Whether it’s a need or an expectation, obviously that only tells itself out over time,” Lalime said.

HealthyCT was one of 23 CO-OPs – consumer oriented and operated plans – that launched with $2.4 billion in federal money made available through the 2010 health law. HealthyCT received $129 million in federal loans for both start-up costs and to meet capital requirements. Insurance regulators require that carriers have certain levels of capital and surplus to ensure they will be able to pay claims.

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CO-OPs came about through a compromise hatched during negotiations over the health law, a way to appease liberals who had pushed for a public insurance option. While boosters touted the idea of nonprofits to compete with for-profit insurers, others were skeptical that the new companies would survive.

Federal auditors reported earlier this year that most of the CO-OPs hadn’t met their initial enrollment and profitability projections in 2014, the first year they offered coverage. The auditors warned that low enrollment and financial losses could limit the ability of some to repay their loans and remain viable.

And as of this week, 12 of the 23 CO-OPs had either closed or announced plans to shut down.

The future of the remaining 11 remains to be seen, noted Scott E. Harrington, a professor of health care management and insurance and risk management at the University of Pennsylvania’s Wharton School. He has studied and written about CO-OPs.

Harrington reviewed HealthyCT’s most recent filing with the National Association of Insurance Commissioners, which covered the period that ended June 30. “Relative to some of the others, they’re not so bad,” he said.

A key factor in any CO-OP’s viability, Harrington said, is likely to be slow growth, allowing a new insurer to learn as it grows. The worst thing that could happen to a CO-OP, he said, would be to price their plans so low they generate a lot of business – meaning they insure thousands of people at prices that don’t cover the costs.

“Any CO-OP, including this one, in order to survive, they really have to hit a sweet spot where they can get their price high enough to be able to cover their claims and administrative expenses, but still generate some growth in business,” Harrington said.

HealthyCT did grow slowly, although not by design. In 2014, the company aimed for 25,000 members but ended the year with 7,966, according to a recent filing. The company had some of the highest prices on the state’s health insurance exchange, Access Health CT.

But in 2015, the company lowered its premiums – making its prices among the lowest on the exchange – and grew membership. As of June 30, HealthyCT had 31,212 members, according to the filing. Lalime said this week it’s up to more than 36,000.

The open enrollment period for 2016 coverage is going on now, and this time, HealthyCT doesn’t have the same price advantage compared to its competitors as it did in 2015. The Connecticut Insurance Department required the company to raise its 2016 premiums to a higher level than HealthyCT proposed to ensure that they would generate enough income to pay medical claims.

Insurance Department spokeswoman Donna Tommelleo said the agency meets with HealthyCT regularly. “We closely monitor its financial health, business plan and objectives, as we do with all carriers,” she said.

Some of the failed CO-OPs’ problems have been attributed to changes in a federal program intended to limit the risk insurance companies took in the early years of Obamacare. Many insurers had been counting on substantial payments from the “risk corridor” program, but the federal government recently announced that it would pay only about 12 percent of the funds companies had been expecting.

Lalime said HealthyCT had been expecting a relatively small payout from the program and hadn’t counted the money on its balance sheet, minimizing the impact of the federal funding change.

The company has had other potential advantages. While some CO-OPs had to pay to use other companies’ health care provider networks, HealthyCT built its own. Getting doctors to sign on was eased by the fact that the company was created by the Connecticut State Medical Society and the medical society’s association of independent physician practices, which Lalime used to run.

In addition, HealthyCT sells insurance through the state’s large-group market, broadening its potential customer base beyond the exchange.

Lalime said the company’s enrollment projections for exchange customers are more modest for 2016, since many customers are price-sensitive. The company is counting on growth, but expects most of it will occur outside the exchange.

A significant portion of HealthyCT’s capital is actually money loaned by the federal government. If that money were counted as obligations, the company’s obligations would exceed assets and receivables by about $60 million, Harrington said. But he noted that those loans don’t have to be paid back for many years, and can only be repaid with approval from state regulators. And he said it was widely expected that it would take time for CO-OPs to build up the capital from their own earnings to be able to start repaying the loans.

“As a practical matter, if one of them survives long enough for those loans to start being due, and they were at least turning some sort of profit, I’m virtually positive they would be renegotiated and there would be an arrangement made to extend the window,” he said.

What would Harrington watch for to track CO-OPs’ viability? In a year, he said, he’d want to see a significant reduction in operating losses and a trend toward modest growth.

“A year from now, we should know a lot more,” he said.