It was a rough year for health insurance co-ops established under the Affordable Care Act (ACA). At least a dozen of the 23 co-ops failed in 2015, resulting in hundreds of thousands of policyholders and their advisors scrambling to line up alternative coverage.
And because the defunct co-ops received approximately $1.24 billion in loans from the federal government, these failures have cost taxpayers and the federal treasury. More troublesome, most of the surviving co-ops are in a precarious financial state, according to a report from the Inspector General of the Department of Health and Human Services.
But it doesn’t end there. A rough year for co-ops has led to troubled times for approximately 740,000 policyholders who have lost coverage and for health insurance advisors who have been told that commission payments are in jeopardy.
CoOportunity Health, which operated in Iowa and Nebraska, was one of the first co-ops to go under when it closed in February 2015. NAIFA Trustee Chuck Olson of Omaha says the closure hit many NAIFA-Nebraska members hard.
“This was horrible for advisors and a major inconvenience for consumers,” Olsen said. “A number of advisors had added staff and expanded their operations to handle the increased business. Now, not only is that business gone, but with the bankruptcy advisors were told they wouldn’t receive commissions for the work they had already done.”
ACA co-ops are designed to be private non-profit insurers that underwrite ACA-compliant plans and are entities owned by their policyholders, similar to a mutual insurance company. Co-ops, which are subject to all state insurance licensing requirements and financial standards like other insurers, are intended to compete in the individual and small group health insurance markets.
But unlike other insurers, many of the co-ops have taken on significant risk without the necessary capital to remain solvent. In a recent report by the Wall Street Journal, the failed co-ops priced polices too low to generate the needed revenue to pay claims and ensure profitability. The co-ops also had access to a limited pool of capital, as Congress made major cuts to the federal loan program established to pay start-up costs. These factors, along with a higher than expected number of claims, led to the current situation.
For advisors and their clients, the co-ops often looked like a good deal. The Iowa-Nebraska co-op boasted “prices 30 percent below the market and still promised agents fair commissions,” Olsen said. “The co-op relied on the expertise of professional advisors to distribute the product with the promise of compensation. Some agents had moved their entire block of clients over.”