Failures among member-run health insurance co-ops are forcing thousands of consumers to find new health insurance coverage, while renewing questions about the viability of a once-promising program created by the Affordable Care Act.
In Illinois, about 49,000 people must find coverage after state regulators last week ordered Land of Lincoln Mutual Health Insurance Co. to close in the face of steep losses.
For those consumers, enrolling in new plans mid-year means restarting deductibles and out-of-pocket maximums, and potentially losing access to current doctors — a predicament that the Illinois Department of Insurance acknowledged late last month could cause "extreme financial harm."
Land of Lincoln's troubles mirrored those of other insurance co-ops created under President Barack Obama's signature health reform law. These consumer operated and oriented plans were conceived as an alternative to commercial insurance. Set up as nonprofits and seeded with federal loans, the co-ops were supposed to spur competition by giving Americans a way to buy health insurance from companies with a strong consumer focus.
But many struggled early. Either they increased enrollments too fast, and then could not keep up with rising health costs, or they could not gain enough members to help spread their costs. Others, including Land of Lincoln, were doomed by shortfalls in anticipated federal funding, as well as rules that required them to make huge payments to competitors.
A year ago there were more than 20 co-ops across the U.S., providing coverage to about 1 million Americans. By this fall, after the co-ops in Illinois, Oregon, Ohio and Connecticut close, there will be just seven, covering about 350,000 people.
Lori Strumpf, co-owner of R&M Oil in Columbia, Ill., said she liked Land of Lincoln's premium price, which was about $ 1,300 per month for family coverage with a $ 500 deductible per individual, a $ 3,350 out-of-pocket maximum and access to a wide range of providers.
But when claims weren't being resolved in a timely fashion, she knew something was wrong. Her children's pediatrician still hasn't been paid for a visit in August 2015, and his office has threatened to send the bill to collection. Her employees — R&M has 15 — reported similar problems, she said.
Land of Lincoln's price may have been right, but "cheap isn't always good" when it comes to health insurance, Strumpf said.
Joe Colyer, a broker with Working Class Benefits in Granite City and Strumpf's agent, said Land of Lincoln offered health plans for small employers and individuals that were priced competitively and had large networks in the Metro East. His firm helped enroll hundreds of individuals into these plans for coverage in 2015. But toward the end of the year, his firm started receiving complaints about Land of Lincoln not paying providers and because of that doctors started dropping out of its networks.
"Whenever we were reaching out to the carrier to resolve things ourselves, we were getting terrible wait times and response times," Colyer said. "They don't have the administration to handle the volume that they were price-pointed for at the beginning of the year."
Going into 2016, Colyer said his firm started to reduce its offerings for Land of Lincoln plans.
Daunting challenges
Land of Lincoln was founded by an organization that represented Illinois' 150 hospitals, the Metropolitan Chicago Healthcare Council. The group used a $ 160 million loan from the federal government to establish the member-owned health plan.
Like other co-ops created under the ACA's Consumer Operated and Oriented Plan Program, Land of Lincoln faced an uphill battle from the start, policy experts say.
It didn't have deep financial pockets like well-established health insurers, and it lacked the historical patient data to estimate costs and prices effectively, according to Linda Blumberg, an expert on health insurance and senior fellow at the Urban Institute.
After a slow start in 2014, Land of Lincoln grew rapidly in 2015, finishing the year with more than 35,000 individual policyholders and about 15,000 members in small and large employer plans. That growth, coupled with higher-than-expected claims, caused it to lose $ 90 million in 2015 and more than $ 17 million through May 31.
It wasn't just miscalculating claims, though. Provisions in the health law, coupled with later policy decisions, caused many co-ops to fail, according to a study in December 2015 by the Commonwealth Fund.
For example, insurers that faced significant losses were supposed to receive payment from the government to cover the claims they couldn't afford to pay.
To pay for these losses, the government collected from insurers who earned significant profits. According to the Illinois insurance regulators, Land of Lincoln is owed more than $ 70 million in these payments.
Yet, at the same time, Land of Lincoln owes $ 31.8 million to regulators for another type of risk adjustment payment designed to help offset losses at insurance companies with sicker and costlier members.
State insurance regulators sought unsuccessfully to block that payment to save the company from being liquidated.
Survival strategies
For the handful of co-ops that remain in business, most are proposing steep premium increases for the 2017 enrollment season, often by at least 10 percent. But raising prices is only part of the solution.
Maine Community Health Options, Maine's 80,000-member co-op, has turned to Express Scripts, the north St. Louis County-based pharmacy benefit manager, with the goal of saving about $ 14 million annually by paying lower drug prices.
New Mexico Health Connections, a co-op with 47,000 members, is seeking to raise money from investors, which the Obama administration only recently allowed co-ops to do, said the CEO, Dr. Martin Hickey. It's also adding larger employers and labor groups, including some teacher unions, to its client base.
"The only way to survive is to diversify," Hickey said.
Montana Health Co-Op, which has about 35,000 members in Idaho and Montana, is focused on holding down administrative costs. It has about 20 full-time employees and hasn't replaced some that left. "Some people we had during our startup mode we figured we can now work without them," said spokeswoman Karen Early.
Montana Health, which lost about $ 40 million in 2015, also has requested an average premium increase of 21 percent in Idaho for next year and 22 percent in Montana, she said.
Phil Galewitz of Kaiser Health News and the Associated Press contributed to this report. Kaiser Health News is a national health policy news service that is part of the nonpartisan Henry J. Kaiser Family Foundation.
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