State deems insurance co-op, HealthyCT, financially unstable

Updated at 9:03 p.m.

About 40,000 people will lose their health insurance in the coming months as a result of a state evaluation that has deemed the financial health of Connecticut’s nonprofit health care co-op unstable.

The co-op, HealthyCT, was issued an order of supervision from the state’s Insurance Department Tuesday after it became clear a new federal requirement for the provider to pay $13.4 million would leave its finances in disarray. The order prevents the co-op from issuing any new insurance policies – a measure designed to protect consumers. Co-op CEO Kenneth Lalime said existing health insurance plans will remain in effect until the dates they were originally set to expire.

HealthyCT is required to pay the hefty sum because of a federal risk adjustment program built into the Affordable Care Act. It takes profits from certain health care providers with less risk and shifts those funds to other providers with higher risk. A statement from the Insurance Department Tuesday says this redistributes “funds from insurers with generally healthier policyholders to companies with sicker policyholders and higher claims costs.”

The requirement went into effect on June 30. State officials subsequently ruled that it placed too much financial stress on HealthyCT when coupled with a previous order withholding funds from certain companies under a “risk corridor” provision from 2014, according to the Insurance Department’s evaluation.

This leaves just two providers on the state’s health-care insurance exchange, Access Health CT, in the coming years. United Healthcare announced in April it would leave the exchange after this year. Plans from Anthem and ConnectiCare remain available to consumers.

“This is not an action that we take lightly but did so in order to immediately protect the company’s 40,000 policyholders in Connecticut and make certain that their claims will be paid under the terms of their policies and for the duration of those policies,” said insurance Commissioner Katharine L. Wade.

Most consumers receiving coverage from HealthyCT will be able to keep their plans at least until the end of the year, according to the Insurance Department. Individual policyholders, which make up about 13,000 of the co-op’s members, will continue to have coverage through the end of 2016. After December, these individuals will have to find a new insurance plan for 2017 and beyond.

Large and small employer plans that renewed on July 1 will remain effective through June 30, 2017, but employer plans set to renew on Aug. 1 will be terminated. About 27,000 individuals receive coverage through employer plans.

Access Health stopped selling plans from HealthyCT on the state exchange as soon as the Insurance Department made its announcement. About 11,300 customers on the exchange have plans through HealthyCT.

“Those customers will be covered under their current policies until December 31, 2016, and will have to enroll in a new plan when our Open Enrollment Period begins November 1, 2016,” Access Health CEO James Wadleigh said in a statement. “(Our) staff are currently developing an outreach plan to inform customers who purchased HealthyCT products via the exchange of their change in status and to inform them that they will need to shop for a new plan come November.”

In addition to the 40,000 already enrolled in HealthyCT plans, another 52 individuals about to lose their state-sponsored Medicaid coverage, HUSKY A, will also be affected. Those individuals, who are facing an Aug. 1 deadline, chose to transition to a new plan with HealthyCT, but will have to find a new plan yet again with less than a month until their current coverage expires.

Co-ops struggling nationwide

HealthyCT launched in 2011 when $2.4 billion in federal funding for co-ops – consumer oriented and operated plans – became available through President Barack Obama’s signature health care legislation. It resulted in the creation of 23 new co-ops across the country. The non-profit organizations intended to differ from for-profit insurance companies by returning profits to their customers.

Connecticut’s co-op, founded by state doctors, received $129 million in funding through the program. Despite promises of profitability, many of the co-ops struggled. Twelve of the 23 had gone under nationwide by the end of 2015. In May, Ohio’s co-op received a request from its state insurance department to close its doors. HealthyCT became No. 14 on the list of co-ops in jeopardy Tuesday.

The co-op struggled early on to gain traction in the state. Officials at HealthyCT initially aimed to enroll 25,000 individuals in plans by the end of 2014 – its first year offering plans. However, the reality of the challenge quickly set in when they were only able to sign up 7,966 within that time frame.

But by 2016, the co-op had become responsible for covering about 40,000 customers in Connecticut, thanks in part to a decision to lower its rates below those of the other competitors on the state insurance exchange in 2015.

While the number of customers enrolled increased, profitability continued to remain a struggle. The co-op lost $28.5 million in 2014 and another $9.5 million through the first half of 2015. Lalime said in November it needed to begin turning a profit within the next 12 to 18 months to remain financially stable. In an attempt to stem more losses, state Insurance Department officials rejected HealthyCT’s proposed premiums for 2016 health insurance plans, requiring them to raise their rates to bring them closer to profitability.

Tuesday’s announcement from the Insurance Department indicates the co-op was unsuccessful in that effort. The department had been monitoring HealthyCT closely in the months leading up to the decision, but maintained the co-op had managed to stay financially solvent before June 30.

Wade has advocated against the federal risk redistribution requirements in the Affordable Care Act. Earlier in the year, she met with U.S. Health and Human Services Secretary Sylvia Burwell to urge a change to the risk adjustment formula.

Republicans were quick to place the blame on the Affordable Care Act itself. Sen. Kevin Kelly, R-Stratford, who serves as ranking member on the state legislature’s Insurance Committee, said Republicans warned the system would be unsustainable.

“The HealthyCT CEO just two months ago was quoted as saying how viable and stable HealthyCT was. And last November there were also boasts of confidence,” Kelly said. “But the insurer did not see the obvious, well-known federal plan to turn off the flow of federal funding. Now, without that false sense of stability created by federal dollars, Connecticut insurers are either requesting steep rate increases or they are in deep financial trouble.

“Our families and our children – the insurance consumers – are the ones who will lose out on choice, affordability and access.”