The deadline for enrollment into an ACA marketplace plan for January 1, 2016 has come and gone, but many of the problems associated with the demise of 12 CO-OPs are only just becoming apparent. Of the over 700,000 people in 11 states who lost their CO-OP plan this year, many have yet to find new coverage or are still scrambling to sign up with new physicians or hospital providers. For example, Colorado officials report that fewer than half of enrollees in that state’s failed CO-OP have switched to a new company. And for some providers, such as Memorial Sloan-Kettering in New York, the CO-OP was the only marketplace company with whom they were contracted as in-network providers, requiring many enrollees to find new providers or to pay out-of-network rates to stay with current ones.

There have been numerous commentaries about the CO-OP program, including our own analysis for the Commonwealth Fund, published late last year. Many of these point blame in various directions – at the CO-OPs themselves, at the federal agency managing the program (CCIIO), and at Congress – for actions (and inaction) that undermined the program. It’s well and good to apportion blame, but there’s more to be learned from the CO-OPs’ experiences than that. They can teach us much about the huge barriers facing new companies entering the health insurance market. The experience also shows that state and federal regulators have a lot to learn about how to manage a company failure and ensure the smoothest possible transition for consumers.

Barriers to market competition

As the Department of Justice and many state regulators examine the proposed mergers between major national insurers Aetna/Humana and Anthem/CIGNA, the CO-OP lesson is particularly pertinent. One factor regulators must consider is how easy it is for a new company to enter the health insurance market. And the simple answer is that it’s not. The CO-OPs, for example, had three important advantages that new companies entering the market have not historically had. First, they each had millions of dollars in federal start-up and solvency loans. Second, they were entering the market at a unique moment, when millions of new enrollees would be shopping for health insurance, resulting in an unprecedented expansion of the individual market. And third, the new marketplaces are designed to help consumers make apples-to-apples comparisons among health plans, lessening the marketing advantage of brand-name, well-financed insurance companies. But even with those advantages, 12 CO-OPs failed. Although some of the failure is due to programmatic and political challenges unique to the program, a good part stems from the significant barriers facing any new market entrant. These include, for example:

• Meeting state solvency requirements, which rightly require new insurers to demonstrate that they have enough capital to cover claims, both expected and unexpected. This means that any new market entrant must have a significant cash cushion – before they even sign up their first customer.
• Building a provider network that can adequately meet enrollees’ needs while also paying reimbursement rates that can keep costs – and thereby premiums – in check.
• Setting competitive rates without the historical claims and practice pattern data that established competitors have. Price too high, and a new entrant might fail to attract customers from lower-cost, more well-known rivals. Price too low, and it might gain members but risk significant losses if premium revenue isn’t sufficient to cover enrollees’ costs.

It is little surprise then that most health insurance markets have long been highly concentrated and are dominated by just one or two insurers. The largest insurer in the individual market has 50 percent or more market share in 30 states; for the small group market the same is true in 28 states. Policymakers often talk about how important it is to encourage greater competition in health insurance markets and provide consumers with more choices. But based on the experience of the CO-OP program, it will require a much greater investment of financial resources and political capital than has been made to date.

Managing Transitions for Consumers

Many enrollees of the failed CO-OPs – and the providers who served them – are likely to feel the effects of the market failure for a long time. Some consumers may not take the steps necessary to re-enroll with a new company and will rejoin the ranks of the uninsured. Many others have been forced to end relationships with trusted providers that are no longer in-network with their new plan. Others may have problems resulting from changing benefit designs and formularies, including challenges obtaining prescription drugs or other benefits approved by the CO-OP but not by their new company.

State and federal regulators can do more to prepare for and manage company failures so that consumers aren’t unnecessarily harmed. Of course, one of state regulators’ most important jobs is to try to prevent the company from going under in the first place. But when this does happen – and it will – consumers need help navigating the transition. For example, as we discuss in a recent blog post for the Commonwealth Fund, states could require a consumer’s new insurer to provide continuity of care protections for enrollees in the midst of treatment or pregnancy. And the federal and state marketplaces could do more to provide targeted outreach and one-on-one enrollment assistance to the enrollees of the failed or departing company.

Once open enrollment into 2016 coverage comes to a close at the end of January, it will be important to assess the experiences of former CO-OP enrollees as they transition to new forms of coverage and care.  They will undoubtedly have much to teach us about how to improve the experience in the unfortunate – but probably inevitable – event of future failures.