A Sixth Nonprofit Health Insurance CO-OP Goes Under

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October 14, 2015; Commercial Appeal

Earlier this week, NPQ’s lead story discussed five consumer-governed nonprofit health insurance cooperatives that had announced they were going out of business. Yesterday, the number increased to six. Tennessee’s Community Health Alliance replicated the decision of the Kentucky Health Cooperative to cease offering coverage as of 2016.

Community Health’s enrollment numbers, 27,000 members, were only about half of Kentucky’s. Where Kentucky’s CO-OP had been celebrated for having captured the lion’s share of the state exchange’s business, Tennessee’s smaller enrollment number reflects an early problem of some of the CO-OPs—an insufficient level of customers, too small a scale for long-term economically feasible operations. Community Health’s low member numbers plus its attractive pricing led to significant enough losses to cause state and federal regulators to freeze its enrollment last January.

Like Kentucky, the Tennessee CO-OP, too, was surprised to hear it would receive a risk corridor payment of only 12.6 percent of the $17 million it might have anticipated. That plus its operating losses combined to make survival practically impossible.

As discussed by NPQ in previous articles, the restrictions on nonprofits’ activities in the selling of health insurance—essentially limiting them to the exchanges for certain products while their competitors could diversify into other products and markets—have made the operations of the cooperatives enormously difficult. To some extent, the nonprofit insurers achieved some of their public policy purpose in the Affordable Care Act, adding more competitiveness to an otherwise oligopolistic health insurance market and, as reported, helping to get other insurers to lower the costs of their products.

That being said, there’s no reason for the White House and Congress to abandon the CO-OPs, already hampered by restrictions that limit their flexibility and their access to capital, now that they are also facing maneuvers by big capital. Reed Abelson noted in the New York Times in September that “the co-ops’ problems are compounded by moves among the industry’s biggest companies, like Anthem and Aetna, which plan to buy their rivals to become even bigger. That raises the specter of even less competition in the marketplace and less room for smaller players to make a dent.”

As a result of the Aetna (merging with Humana) and Anthem (acquiring Cigna) moves, a CNN Money article hypothesized that there were only five large health insurance companies left, but that could quickly be reduced to three. Why would this be a concern regarding the potential availability and affordability of health insurance going forward? “Bigger insurers will have more clout,” CNN Money wrote. “They could raise premiums and reduce the number of doctors and hospitals that are part of network coverage plans.” In other words, the market trend could be the exact opposite of what the ACA and the CO-OPs were meant to achieve in terms of competition and pricing.

“Bigger insurance companies mean increased leverage and unfair power over negotiating rates with hospitals and physicians,” according to a statement issued by the American Academy of Family Physicians. “More often than not, consolidation increases costs and reduces options for consumers.”

Beating up on the start-up nonprofit health insurers and other small players may not be the prime motivation behind the mega-mergers. Writing for Modern Healthcare, Bob Herman explained the attractiveness of expanding into the Medicare Advantage market as a major element in the Aetna and Anthem mergers. Nonetheless, the result is that the start-up cooperatives, meant to do what a real public option would have done in terms of competitiveness, find themselves crunched by the power of big capital—without the policy protection of the federal government that created the cooperatives in the first place.

For all the concerns expressed by opponents that the Affordable Care Act would harm the big insurance companies, the reality is that they’ve done quite well, thank you very much, in the way the ACA regulations have been designed and implemented. Who is going to step up for the nonprofit health insurance cooperatives? The nonprofit sector writ large should be advocating for their survival and expansion in the absence of a government/single-payer health insurance structure. Nonprofits should be standing up for nonprofits when government regulation combines with big corporate money to undermine the potential accomplishments of nonprofit players in the market.—Rick Cohen