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Why is Colorado Health OP shutting down?

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Why is Colorado Health OP shutting down?

Headlines from December 2014 – after Congress passed a bill blocking funding of the risk corridors.

UPDATE, 10/20/15: On October 19, Colorado Health OP filed a lawsuit in Denver District Court, seeking an injunction and temporary restraining order to allow the carrier to continue to sell policies – and participate in the 2016 open enrollment period – while working for the next few weeks to secure funding from one of the three sources they had been pursuing. But the effort was short-lived. By the end of the day on the 19th, the CO-OP had agreed to shut down at the end of the year, and will no longer push to be allowed to sell policies for 2016. The lawsuit and closed-door court hearing have been suppressed by the Court. Health OP CEO Julia Hutchins  – who fought hard to keep the CO-OP open for the past three weeks – explained that the fight is over: “All I can say is that we will work with the Division of Insurance to wind down the company. There will be no further hearings. And no further comments from me.”

Earlier this month, I wrote about the fact that Colorado Health OP, our local ACA-created CO-OP, was in financial trouble as a result of the risk corridor shortfall. I’ve updated that post with more details on the history of how the risk corridor program came to be budget-neutral, so check out that post if you have questions about how all of this came to be.

As of October 15, things were looking promising for Colorado Health OP. They had rallied their 80,000 members to the cause, and had presented the Department of Insurance with three viable options for financing.

But on October 16, the Department of Insurance announced that they had decertified Colorado Health OP from the exchange for the coming open enrollment period, effectively shutting down the CO-OP. The DOI clarified that the risk corridor debacle was the cause of the problem, but reiterated that their focus had to be on the stability of the insurance market in Colorado, and the need to protect insureds from the possibility of the CO-OP running out of funds mid-year in 2016. Insurance Commissioner Marguerite Salazar explained:

“Our decision is a direct result of this shortfall by CMS, and I sympathize with the HealthOP, but the Division has requirements and it has to protect consumers. It is a key function of Colorado Divison of Insurance to make sure that insurance carriers are financially stable enough to pay the claims of their policyholders. While Colorado HealthOP can continue to pay claims for the rest of 2015, we cannot allow it to sell or renew policies on the exchange for 2016.  

It is truly unfortunate, but the Division had to act now, before open enrollment gets started November 1st. To delay any longer would undermine the open enrollment process, impacting the entire health insurance market in Colorado and negatively impacting Colorado consumers. And it would have been even more costly to consumers if this action had to take place once 2016 started.”

In the wake of the news that the CO-OP would shut down at the end of 2015 – leaving 80,000 members having to shop for coverage from a different carrier – Colorado Health OP vehemently disagreed with the DOI, calling the decision to close the CO-OP “irresponsible and premature.” Since the risk corridor shortfall was announced on October 1, four CO-OPs have announced they will close at the end of 2015. The rest of them appeared – at least publicly – to agree with the decision to close, even though it’s never an easy decision to make. But in the case of Colorado Health OP, they’ve fought to stay alive from the get-go, and were clearly caught off guard by the DOI’s decision.

There’s some discrepancy in the details when we compare the reports from Colorado Health OP and the DOI. Colorado Health OP claimed that they were on track to pay back their loans in full and ahead of schedule, but the DOI says that the risk corridors shortfall was going to result in the CO-OP’s reserve fund being “completely wiped out” and the CO-OP being $34 million in the red by the end of the year. Yet the risk corridor shortfall was roughly only $14.2 million, so the two positions don’t completely reconcile. In addition, a risk corridors receivable of $16.2 million seems excessive given a premium revenue of $54.7 million.

It appears that Colorado Health OP misjudged how low they could price their plans and still be financially sustainable – but then again, so did a lot of other new carriers; pricing plans for 2014 was little more than educated guessing, since nobody had any claims data on which to base numbers. But it’s also interesting to note that Colorado Health OP reduced their rates for 2015, putting themselves in position to have the lowest rates in eight of the state’s nine rating areas. That resulted in a dramatic increase in market share, but if premiums were already too low in 2014, it could explain the DOI’s finding that the CO-OP was going to be $34 million in the hole by the end of the year, despite the risk corridor shortfall being only about 40% of that amount.

One way or another, the result is that Colorado Health OP became the seventh operational CO-OP to shut down – although Health Republic in Oregon joined them just a few hours later, taking the count to eight. Members will need to secure coverage with a different carrier for 2016. Many of our clients have coverage with Colorado Health OP, and our focus will be on making sure their transition to a new carrier is as easy and smooth as possible. And the good news is that Colorado has a very robust health insurance marketplace; there will be ten different carriers offering plans through Connect for Health Colorado in 2016, and Colorado Health OP members will be able to select from a wide range of options.

Denver reporter Michael Booth noted on Twitter that we need to ask whether all of our elected officials on both sides of the aisle did everything possible to try to secure funding for the CO-OP and protect coverage for 80,000 Colorado residents. I would say that’s a fair question, and one that CO-OP members should be asking of their Senators and Representatives.

Keep in mind that the risk corridors program was not originally supposed to be budget neutral; the intention was for federal funding to make up the difference if overages from profitable carriers didn’t keep up with losses from carriers like Colorado Health OP (exactly the situation we ended up with for 2014). But Republican lawmakers included language in last year’s Cromnibus legislation (HR83) to block funding of the risk corridors program. That legislation passed in December 2014, long after rates had been established for 2015 – which probably increases the likelihood that we could be looking at the same scenario next fall.

Specifically, HR83 included this section:

“Sec. 227. None of the funds made available by this Act from the Federal Hospital Insurance Trust Fund or the Federal Supplemental Medical Insurance Trust Fund, or transferred from other accounts funded by this Act to the “Centers for Medicare and Medicaid Services–Program Management” account, may be used for payments under section 1342(b)(1) of Public Law 111-148 (relating to risk corridors).”

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