Community Health Options (CHO), a Lewiston-based insurance provider, has asked the Maine Bureau of Insurance for a whopping 44.9% rate increase on their catastrophic level plan.
CHO is one of 23 nonprofit Consumer Operated and Oriented Plans (co-ops) created under the Affordable Care Act, over half of which have since failed. Being the only co-op to turn a profit in 2014, CHO was initially held up as a success story amidst the otherwise dismal performances of the co-ops. In 2015, however, CHO began to rack up significant losses and ended the year with losses of over $30 million and projected losses of $40 million for 2016.
In response, CHO announced that it would no longer be accepting new enrollments in the middle of the 2016 open enrollment period. The Maine Bureau of Insurance tried to help stop the massive losses by putting CHO into receivership and cutting thousands of plans, but the Centers for Medicare & Medicaid Services (CMS) rejected that plan. CHO has continued to work closely with the Bureau of Insurance along with CMS in order to get back on sturdier financial ground heading into 2016. Although CHO has yet to file a financial report for the first quarter of 2016, the Bureau of Insurance has noted that the nonprofit is largely keeping to a plan hashed out months ago.
The catastrophic plan which will see the 44.9% rate increase is available on the Obamacare exchanges for those under 30 or for those over 30 who have been granted a hardship extension–essentially, those who are not able to afford large premiums but who don’t qualify for Medicaid. Catastrophic plans have lower premiums and higher deductibles than most plans, and are generally seen as the most affordable insurance option. In the 2016 open enrollment period, 1% of the 84,059 Mainers who enrolled through the exchanges chose catastrophic plans. Anthem, CHO’s only competitor on the exchanges, has requested a rate increase on its equivalent catastrophic plan between 10% and 14%. CHO is actually raising all of its rates by double digits, with the lowest increase being about 17%, but most being over 20%.
Curiously, the nonprofit insurer raised rates by only minimal amounts in past years and actually reduced rates on its catastrophic plan by 3% and 6% in 2014 and 2015 respectively. This, in part, speaks to the problems new insurers can have adjusting to the insurance market, especially when they are heavily pressured to offer plans at the lowest possible prices without data on what future payouts will look like. CHO was further jeopardized by the low levels of capital it kept to insure it in the case of massive losses like those seen in 2015.
Of course, the co-ops were never expected to stand on their own–at least for the first few years. Instead, the Affordable Care Act set up what are known as risk corridors. Essentially, risk corridors were meant to transfer excess profits from successful insurers on the exchanges to counter losses from unsuccessful insurers. These risk corridors could only be effective if there were net profits across the exchanges, but, perhaps unsurprisingly, 2015 showed net loss. Under the law, the federal government was supposed to bail out the insurers with a massive influx of cash into the risk corridors, but a Congressional budget deal blocked any such bailout. Co-ops like CHO had used the promised bailout of the risk corridors as an excuse to keep capital low, as any major losses could be averted with a transfer from the profits of more successful insurers.
A mixture of unsustainably priced plans, higher than expected enrollment, and less healthy enrollees helped lead to CHO’s 2015/2016 losses. Raising prices as proposed is one obvious way to stem the losses and get the organization back on the right track. In the process though, one is left asking what the point of the nonprofit co-ops was. If the point was to keep lower premiums and avoid drastic rate increases like those noted, then CHO is failing on all counts. Ultimately, if CHO can get back on solid financial ground, it’s unclear whether it will look any different than the for-profit insurers it was set up to replace.