Obamacare Insurer Startups Defy Forecasts to Win Share

INN Breaking News, March 13, 2014

Alex Wayne

“They’re finding their way to us off the exchange, fortunately,” Dawn Bonder, CEO of Oregon’s Health Republic Insurance, one of two co-ops in the state, said in a phone interview. She estimated the company signed up about 4 percent to 5 percent of customers using Oregon’s exchange, which had enrolled about 33,800 people by February, according to the U.S. government.

Opportunity Ahead

“We’re looking at 2015 as an opportunity to just do what we hoped to do in 2014 -- but with a lot of experience under our belt,” she said.

At the same time, co-ops in Michigan and Tennessee haven’t grown at the rate of peers because they initially over-priced their plans relative to competitors, spokesmen for the companies said.

“2014 is preparation, really, for ’15,” said David Eich, a spokesman for Consumers Mutual, the Michigan co-op, in a telephone interview. “We’re going to be really engaged back on the individual market.” He said the company isn’t in danger of going out of business.

About 16 percent of the loans are for the co-ops’ start-up expenses, such as leasing office space and hiring staff, and must be repaid in five years. The rest is to be saved to meet state regulatory requirements for insurers’ financial reserves, and is due in 15 years.

Opponents Remain

Some Republicans, meanwhile, still contend taxpayers remain at risk of losing much of the money loaned to the companies. At a Feb. 5 hearing on the co-ops, Representative James Lankford of Oklahoma called the program “an investment disaster,” and said there remains “the possibility that American taxpayers will be left on the hook.”

Along with Maine, co-ops have attained large market share in New York, Iowa, Nebraska, Colorado, Kentucky, Wisconsin, South Carolina, Utah, Montana, Nevada and New Mexico, said John Morrison, a board member and founding president of the co-op trade group, and other executives.

New York’s co-op, Republic Insurance of New York, which was founded by the same organization, Freelancers Union, that started Bonder’s company in Oregon, is probably the largest in the country, with more than 50,000 members. It was second in market share to WellPoint’s Empire brand on the state’s exchange as of the end of December, according to data from the exchange, New York State of Health.

Planned Expansion

Federal authorities have approved plans by the co-ops in Montana, Massachusetts and Kentucky to expand into neighboring states next year -- Idaho, New Hampshire and West Virginia, respectively. The companies have received a total of $113 million for their expansion plans, according to a government budget document published March 4.

For a handful of co-ops, success has raised a new concern. If they enroll many more customers than they expected, they could run afoul of state regulators who require companies to maintain cash reserves sufficient to cover medical claims in the event they go out of business. All the co-ops received multimillion dollar loans from the government to fund solvency reserves, and the size of each loan was based on projected enrollment.

The Iowa co-op, CoOportunity, which also serves Nebraska, has signed up about 54,000 members, after projecting it would enroll just 11,800 by the end of March, said Cliff Gold, the chief operations officer.

Solvency Loans

“We do have concerns about the solvency loans if we continue to grow at this rate,” Gold said. The co-op was signing up as many as 1,000 people a week in February, he said.

The co-ops have lobbied the U.S. Centers for Medicare and Medicaid Services, which controls the loans, to make more money available for reserves. Congress capped spending on the co-ops as part of a budget deal in January 2013, leaving $253 million in a “contingency fund for oversight and assistance” to the firms, according to another budget document published March 4.

“While it’s still early, we are encouraged by what we have seen so far, and we will continue to work closely with these co- ops to monitor their progress and assess their performance,” a spokesman for the agency, Aaron Albright, said in an e-mail.

If the co-ops continue to grow, Obama administration officials have promised to support them, Morrison said. Morrison and co-op executives met with U.S. Health Secretary Kathleen Sebelius and other top administration health officials at the White House on Feb. 6 to brief them on their progress.

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