Over a dozen of the cooperative health insurers that started under the Affordable Care Act (ACA) have failed, but leaders of Connecticut’s co-op say it is on track to turn a profit next year.
“We’re very viable,” said Ken Lalime, CEO of Wallingford-based HealthyCT, a member-run, nonprofit health insurance co-op. “There are a lot of stable pieces of” HealthyCT.
The co-op is enduring when others have died off, he said, by strategically adapting to changes in the ACA, and diversifying its portfolio. About a third of its business is insuring individuals, a third is small group policies and a third is large group insurance policies, he said.
That diversity, Lalime said, makes HealthyCT less vulnerable to changes impacting the state insurance exchanges.
He acknowledged, though, that several things add “some level of variability into the mix,” including ongoing changes to the ACA.
Like most health co-ops, HealthyCT is funded in part by a federal grant and loan program. It received its initial funding in 2012, as did 22 co-ops in other states. HealthyCT began its first open enrollment period Nov. 1, 2013, and insured its first members in January 2014, according to Lalime.
So far, it has lost money every year. It reported a $27 million loss for 2015 in its Annual Health Statement filed with the Connecticut Department of Insurance. The trend nationally has been similar with most co-ops reporting losses.
But Lalime said that like many startups, HealthyCT was not expected to be immediately profitable.
“This is not an easy business or there’d be more people in it,” he said. “A lot of those losses are because you’re building scale. The first couple years, you’re just trying to find your footing.”
He expects the co-op to become profitable early in 2017, but wouldn’t venture an estimate on what that profit would be.
And despite its losses, HealthyCT’s Annual Statement showed the co-op had $92.2 million in cash and invested assets last year, which Lalime said means it’s able to pay all of its obligations.
“We expect this to be a good turnaround year,” he said. “We are on track, based on our business plan.”
Consumers shouldn’t be scared off from co-ops that aren’t profitable, especially this early, according to Kelly Crowe, CEO of the Washington, D.C.-based National Alliance of State Health Co-Ops. “It’s important to remember that they are under oversight not only from the federal government but their state regulators as well,” Crowe said. “Regulators ultimately decide to license and allow insurers on the exchange, and these decisions are made with the best interests of the consumer in mind.”
In its first year, 2014, HealthyCT had 8,116 members. That number surged to 41,238 at the end of 2015, and at the end of March had dipped to 39,375, Lalime said.
He attributed the recent drop to higher HealthyCT premiums, but said the co-op is expected to end 2016 with 10 percent more members than 2015.
Some new members likely will migrate to HealthyCT once UnitedHealthcare makes its planned exit from Connecticut’s insurance exchange, he said.
Nationwide, health insurance co-ops have disappeared in Iowa, Nebraska, New York and other states.
“It’s no secret that most of these healthcare co-ops have failed,” said Angela Mattie, professor of management and chair of healthcare management and organizational leadership at Quinnipiac University’s School of Business and Engineering in Hamden.
“It’s a very complicated business; it’s very dependent on getting the right pool of applicants,” she said. “You need to spread the risk, and if you’re unable to spread the risk then you get hit with some large catastrophic losses.”
HealthyCT, she said, has benefitted from having the right leaders who know how to navigate changes in health care and make smart business decisions.
“Connecticut has been lucky,” she said.
Many of the co-ops that failed grew too quickly, Lalime said. A lot also suffered, he said, from a change in the so-called “risk corridor.”
The risk corridor, a provision of the ACA, initially let co-ops that record major losses tap into funds that were a combination of federal dollars and money that had been contributed by the co-ops, he said. Due to changes in the law, however, co-ops have never received the full amount they expected from the government, Lalime said.
“That one event did cause many issues with co-ops,” he said.
HealthyCT attributed $4 million of its 2015 loss in part to the impact of the risk corridor change.
“The things we can’t control are the ones that can cause a little bit of variability,” Lalime said.
Amid some struggles, there are “signs of financial strength” among co-ops, said Crowe, noting Maryland’s co-op, Evergreen Health, announced in April it turned its first quarterly profit.
“But the fact that a co-op’s financial health can change from quarter to quarter is yet another indication that the promises of the risk programs still need to be fulfilled, and additional time is needed to fully judge the success of the co-op model,” Crowe added. “We see reasons for optimism based on early results.”