Every five years, Congress updates a package of legislation relating to food and farming issues. Somewhat surprisingly, that legislation – commonly known as the Farm Bill – includes a meaningful health provision that could have implications for the affordability and accessibility of health insurance. The provision, included in the House-passed bill and currently being debated in a House-Senate conference committee, enables the Secretary of Agriculture to create a loan and grant program to assist in the establishment of agricultural association health plans (AHPs).
AHPs are insurance policies offered through an organization to members who share professional relationships or a common interest. AHPs may be exempt from many of the Affordable Care Act (ACA) and small-group market consumer protections, such as the requirement to cover essential health benefits. The administration has worked to encourage the expansion of AHPs as a cheaper alternative to ACA-compliant plans, though some states have pushed back on this expansion, citing AHPs’ long history of insolvency, fraud, and abuse.
Under the current Farm Bill provision, the Secretary could grant ten loans of up to $15 million each to agricultural associations that have been operating for at least three years. In total, the bill calls for $65 million to execute the idea and applicants must “demonstrate an ability to implement and manage a group health plan.”
Aside from concerns that AHP expansion might expose consumers to increased fraud and negatively impact the stability of the individual market, the bill’s injection of federal funding for the purpose of creating new health insurance options flies in the face of hard-earned experience. The idea – grants and loans to support health plans – is strikingly reminiscent of the ACA’s Consumer Operated and Oriented Plan (CO-OP) Program that Republicans once denounced. The CO-OP program was conceived to increase market competition and improve consumer choice through low-interest loans to non-profit organizations that would sell health insurance. However, the program experienced a turbulent run as the new organizations struggled to break into the insurance industry, and their financial failures became a major point of political contention.
As the House now considers directing federal taxpayer dollars into AHPs, it is worth noting lessons learned from the CO-OP program, that is, just how difficult it is to build and maintain an insurance company – and the risks for taxpayers left to foot the bill for market failures.
Challenges the CO-OPs Faced Entering the Insurance Market
At its inception, the Centers for Medicare and Medicaid Services awarded $2.4 billion to 23 CO-OPs* to began operating in 2014. In its first year, the CO-OPs attracted 500,000 enrollees and almost immediately began to lose money. By the end of their first year, the CO-OPs had aggregate losses of $376 million, and by the end of 2015, half of the plans had shut down. Today, only four of the CO-OPs remain. Among other funding and political considerations, the CO-OPs struggled to survive for several reasons:
- High market concentration among larger, established insurers: The individual markets in most states have historically been highly concentrated, with most enrollment going to a few insurers, making it difficult for new entrants to compete. The CO-OPs had a particularly challenging time, in part because the law prohibited them from using federal funding for marketing and many existing insurers were allowed to retain their pre-screened, healthy membership through the Obama administration’s transitional policy.
- Insufficient start-up capital: Although originally promised $6 billion in loans, CO-OP funding was cut to $2.4 billion in subsequent congressional budget agreements. Additional promised funding then disappeared after Congress gutted the ACA’s risk corridor.
- Challenges meeting solvency requirements and setting competitive rates: Insurers are also rightly held to strict state solvency requirements, which demand that they adequately maintain enough funding to cover claims incurred. Not only did the CO-OPs lack this funding, but they were unable to compensate for the deficit by setting competitive rates. Any new market entrant lacks historical claims information, which makes it difficult to gauge where premiums should be set.
Where the CO-OPs are Today
In light of these challenges and others, the majority of the CO-OPs became insolvent and were forced to liquidate. As a result, thousands of consumers had to shop for new coverage, providers were left with unpaid bills, states turned to their other insurers to help cover outstanding claims, and taxpayers have yet to recoup billions in federal loans. Now, four years since their launch, only four CO-OPs remain standing:
- Maine’s Community Health Options: As of 7/31/18, the CO-OP’s total reported surplus was $65.3 million – a near 94 percent increase in surplus since December 2017. The plan serves over 52,000 members and was approved for a 9 percent premium increase in 2019, well within the state’s average rate increases, which range from a 4.3 percent decrease to 2.1 percent increase.
- Mountain Health CO-OP (Idaho/Montana): Mountain Health CO-OP filed for the largest average rate change in Montana for 2019, requesting a 3 percent increase. It serves 22,700 members there. It projects membership growth of only 1,000 in 2019 and recently became the first plan to win its lawsuit seeking federal payment for cost-sharing reductions (CSRs). In Idaho, the CO-OP requested one of the highest 2019 rate increases – 23 percent – and serves almost 24,000 members.
- New Mexico Health Connections: In December 2017, the CO-OP was approved to receive an infusion of over $10 million from health-plan manager Evolent Health, which acquired some of the CO-OP’s assets in order to strengthen its financials and prevent the state from assuming control. The company had been under financial supervision since June 2017. Since then, it filed for an average 2 percent rate decrease for 2019, and has been actively engaged in the ongoing risk adjustment litigation.
- Wisconsin’s Common Ground Healthcare Cooperative: In the CO-OP’s 2018 annual report, it listed a net income loss of $11 million, citing a lack of CSR payments. From 2017 to 2018, the company doubled its membership to 58,000 enrollees and wrote that it hoped 2018 would be the “year we transitioned from a start-up to an established company.” It filed for a rate decrease of nearly 19 percent for 2019.
Take Away: It is unclear whether the Farm Bill will ultimately pass with the provision allocating federal funds to the expansion of AHPs. However, the concept of having taxpayers subsidize new health insurance companies is one we are all too familiar with. The CO-OP program clearly demonstrated how difficult it is for new entities to enter the insurance market. While only four plans remain in operation today, officials should take note of the challenges they faced. Republicans who once characterized the CO-OP program as being “fundamentally flawed” for “artificially trying to inject competition,” should consider what makes their proposal likely to succeed where the CO-OPs did not.
*Twenty-four CO-OPs received start-up loans, but one did not secure a state license to operate and withdrew from the program before offering plans.