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Old 12-24-2014, 12:11 PM
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Default CoOp Flop

http://www.desmoinesregister.com/sto...sion/20856151/

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CoOportunity Health, a fledgling Iowa health-insurance company set up under the Affordable Care Act, has been taken over by by state regulators and could soon go under, officials said Wednesday.

CoOportunity Health is an insurance cooperative set up to give consumers and small businesses an alternative in a market with few choices. The company relied on tens of millions of dollars in federal loan guarantees provided under the Affordable Care Act, also known as Obamacare. It began selling policies in 2013.

Insurance Commissioner Nick Gerhart said Wednesday morning that CoOportunity Health has about 120,000 members in Iowa and Nebraska, and only has about $17 million in cash and assets. Gerhart said the company had expected more federal money but didn't receive it. "It's a difficult situation," he said.

Gerhart said customers' coverage will continue, but he expects most members will switch to other carriers by Feb. 15, the deadline for enrolling in 2015 coverage.

Dana McNeill, CoOportunity's vice president for corporate communications, said the company is working with regulators to ensure a smooth transition for customers. She said she couldn't comment further. When asked if President Cliff Gold is still in charge of the company, she replied, "Nick Gerhart is in charge of the company now."

About two dozen such co-ops have been set up nationally. One of the main goals was to provide choices in states, such as Iowa, where the health-insurance market was dominated by one or two carriers.

CoOportunity was initially seen as one of the co-ops most likely to succeed. That was largely because its founders included David Lyons, a former Iowa insurance commissioner, and Gold, a former executive at the state's dominant carrier, Wellmark Blue Cross & Blue Shield.

CoOportunity is one of just two Iowa carriers offering individual health insurance statewide on the public online marketplace, healthcare.gov, which was created under the Affordable Care Act. Wellmark has declined to participate.

The only other Iowa carrier selling policies on the public marketplace is Coventry Healthcare, which is owned by Aetna.

That's especially important to moderate-income people who want to obtain Obamacare subsidies for insurance. Those subsidies are only available for policies sold on healthcare.gov.

CoOportunity Health has received about $146 million in federal money, according to documents filed in Polk County District Court. The company said a recent move by Congress would limit how much it could obtain in "risk-spreading" money under the Affordable Care Act. Such payments are supposed to help carriers that take on customers with relatively high risks. CoOportunity said the Congressional change could cost it $60 million.

The court papers say that CoOportunity's net cash and investments had dropped from $121.5 million on Oct. 31 to $17 million on Dec. 12.

The insurance division said the company is no longer taking applications, and anyone who signed up with it after Dec. 16 will need to switch carriers.

In a question-and-answer column posted on its website, the division says the company "is in a hazardous financial condition." The column raises the possibility that CoOportunity might go out of business. If so, it warns customers, "your coverage may be limited. State statutes create a safety net to protect policyholders when insurers go out of business. Those statutes cap coverage at $500,000 per life."

The column says people who want to switch carriers can contact an agent or counselor, or go to www.healthcare.gov.

Signs of possible trouble appeared in October, when CoOportunity pulled out of a state program that uses federal Medicaid money to pay private-insurance premiums for thousands of relatively poor Iowans. Gold said at the time that the company lost money on the 9,700 Iowans it had covered under that program, called the Marketplace Choice Plan. Coventry is the only carrier still participating in the program.
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Last edited by Klaymen; 12-24-2014 at 01:47 PM..
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Old 12-24-2014, 01:04 PM
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CoOportunity Health has received about $146 million in federal money, according to documents filed in Polk County District Court. The company said a recent move by Congress would limit how much it could obtain in "risk-spreading" money under the Affordable Care Act. Such payments are supposed to help carriers that take on customers with relatively high risks. CoOportunity said the Congressional change could cost it $60 million.

The court papers say that CoOportunity's net cash and investments had dropped from $121.5 million on Oct. 31 to $17 million on Dec. 12.
$100+ million gone in 42 days.

Last edited by exponentialpi; 12-24-2014 at 02:01 PM.. Reason: Updated article after initial post.
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Old 12-24-2014, 01:47 PM
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They must have changed the article, I'll edit my post to reflect it.
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Old 12-24-2014, 02:30 PM
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Venture capitalists vulture for money.

Edit: In my opinion, the co-op is set up on a failed premise by severely underpricing their product without large capital to back the claims up. However, the founders of the co-op can still pocket large salaries and bonuses in the first year depsite all the loss.
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Last edited by lifishing007; 12-24-2014 at 02:37 PM..
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Old 12-24-2014, 02:46 PM
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Originally Posted by lifishing007 View Post
Venture capitalists vulture for money.

Edit: In my opinion, the co-op is set up on a failed premise by severely underpricing their product without large capital to back the claims up. However, the founders of the co-op can still pocket large salaries and bonuses in the first year depsite all the loss.
I don't know how well this particular co-op priced, but they had a lot of capital available from the government solvency loans (and with basically no interest). Their salaries/bonuses etc were also scrutinized pretty heavily before getting approved as a co-op.

It sounds to me like they just got hit pretty hard with morbidity, more than the solvency loans could overcome. The loan amounts approved were supposed to be able to keep them at a minimum of 400% RBC even with some adverse experience.
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Old 12-24-2014, 03:10 PM
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Originally Posted by erosewater View Post
I don't know how well this particular co-op priced, but they had a lot of capital available from the government solvency loans (and with basically no interest). Their salaries/bonuses etc were also scrutinized pretty heavily before getting approved as a co-op.

It sounds to me like they just got hit pretty hard with morbidity, more than the solvency loans could overcome. The loan amounts approved were supposed to be able to keep them at a minimum of 400% RBC even with some adverse experience.
A number of the 3rd quarter 2014 statements I have seen show extremely high admin expense loads for 2014. I understand start up costs and such but someone is pocketing a sizable portion of that money...
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Old 12-24-2014, 03:13 PM
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A number of the 3rd quarter 2014 statements I have seen show extremely high admin expense loads for 2014. I understand start up costs and such but someone is pocketing a sizable portion of that money...
All of the ones I've seen are paying the executives a very modest salary, especially compared to what they could make elsewhere. Can't speak to that one specifically

In addition to normal startup costs most of them are using consultants to do a ton of their work, and that's expensive
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Old 12-24-2014, 03:14 PM
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Cash flows are a pretty huge issue for smaller plans, especially the CO-OPs. The payments for 2014 under the 3Rs program won't start to be made until the third quarter of 2015 at the very earliest. That's a long time to carry those receivables if you don't have a lot of capital.
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Old 12-24-2014, 03:18 PM
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The initial assumption was that half of the co-ops would fail, so this is not an unexpected development. I'm surprised this one got that many members, though I guess only having two carriers in the exchange helped with that.

Maybe Wellmark was smart to sit it out. See how the market shapes up and if it's bad let someone else take the hit
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Old 12-24-2014, 03:29 PM
cincinnatikid cincinnatikid is offline
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Looks like 5 other CO-OPs also got additional solvency funding during the 4th quarter:

http://www.cms.gov/CCIIO/Resources/G...n-program.html
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