Much has been written about the House-passed “American Health Care Act” or AHCA, including the provision tucked into the so-called MacArthur amendment that would exempt Members of Congress and their staff from the rollback of pre-existing condition protections in the Affordable Care Act (ACA). Receiving less attention has been another exemption that could effectively kill off the last remaining insurers operating under the ACA’s CO-OP program. While only five CO-OPs remain in business operating in seven states (Idaho, Maine, Massachusetts, Montana, New Hampshire, New Mexico, and Wisconsin), they have provided competition in some highly concentrated insurance markets and provided thousands of consumers with a nonprofit coverage alternative.
The decline and fall of the ACA’s CO-OP program
To recap, the ACA created the Consumer Operated and Oriented Plan (CO-OP) program with the goal of giving consumers the option to choose a nonprofit insurer with a strong consumer focus. However, of 23 CO-OPs launched, all but five have shut their doors due to financial challenges or insolvency.* The CO-OPs struggled for numerous reasons, including statutory constraints on their marketing strategies, too-rosy predictions of the health risk of the marketplace population, federal risk corridor payments that were far less than expected, inaccurate projections of enrollment (either too high or too low), and the inability to constrain certain administrative and provider costs and manage quality. Their demise helps demonstrate how difficult it can be for a new company without significant capital to enter a highly competitive health insurance market. Given the many headwinds faced by the CO-OPs, the five remaining companies are battle-tested survivors.
The MacArthur amendment: dealing the death blow
The AHCA, passed by the U.S. House of Representatives on May 4, 2017, includes an amendment that would allow states to seek a waiver from three key consumer protections in the ACA. These are:
- Restrictions on age rating. The AHCA would allow insurers to charge an older person premiums that are as much as 5 times the amount charged to a younger person. A state that sought a waiver under the MacArthur amendment could allow even greater age rating, up to an unlimited amount.
- Requirement to cover essential health benefits. If a state receives this MacArthur waiver, it can define the essential health benefits (EHB) package for individual and small-group market insurance. Such an EHB would not have to include the 10 categories of benefits, nor would the coverage have to be similar to that “offered by a typical employer,” as required by the ACA.
- Prohibition on health status rating. Insurers in states receiving this waiver would be allowed to assess an applicant’s health status and charge them a higher premium based on their health risk if they haven’t maintained continuous coverage over the past year. There is no specified limit on the amount of premium surcharge the insurer could impose.
Thus, if a state obtains a waiver from all three of the above ACA provisions, insurers in that state will be allowed to charge older and sicker enrollees higher premiums than allowed under the ACA, and they will likely be allowed to cover a smaller set of required EHBs. Well, all insurers except for the CO-OPs. For an unknown reason, the MacArthur amendment explicitly does not allow waivers to apply to CO-OP health plans.** In other words, the language would effective create an unlevel playing field between the CO-OPs and their competitors. While other insurers would be allowed to deter older and sicker people from enrolling through higher premiums and skimpier benefit packages, the CO-OPs will still be required to cover the full suite of EHBs and subject to the ban on health status underwriting. As a result, they will quickly become the insurer of choice for older, sicker consumers in their state. As they raise premiums to ensure they can cover a sicker population, their healthy enrollees are likely to flee, leading to the proverbial insurance “death spiral” for these companies.
It’s impossible to know whether the Senate will take up and pass the AHCA with the MacArthur amendment or if they will alter it. If it does ultimately become law, it’s also hard to know how many states will pursue the MacArthur waivers (although state officials will have strong incentives to do so). Either way, however, the remaining CO-OPs should take note – it’s never a good thing when key congressional leaders are explicitly seeking your demise.
*One CO-OP, Evergreen Health Plan of Maryland, was purchased by a consortium of investors and converted to for-profit status in early 2017.
**The MacArthur amendment also exempts the ACA’s multi-state plan program from the waivers. This is likely to have limited effect, since the only insurers offering multi-state plans are Blue Cross Blue Shield (BCBS) companies and the New Mexico CO-OP plan. The BCBS companies will likely discontinue their participation in the program if not allowed to compete on a level playing field with their competitors.