“Although most of them only survived for two years, they saved taxpayers and consumers more money in those two years than the entire program cost,” said John Morrison, a former Montana insurance commissioner who helped start Mountain Health CO-OP, one of the three remaining insurers, and served as president of the — now defunct — National Alliance of State Health Co-ops. “Even the way the whole thing unfolded, it still wound up being a money maker for the American people.”
As the Affordable Care Act’s 11th open enrollment season begins in just a few weeks, Republicans rarely speak of repealing the law, recognizing it is firmly embedded in the health care system. Enrollment this year reached record levels, boosted by the Biden administration and a Democratic Congress that provided a rash of new subsidies after the Trump administration failed to dismantle the health law. The co-ops, once viewed as emblematic of shoddy planning and overreach, now stand as a symbol of the law’s resilience.
Those three co-ops — Mountain Health, which operates in Montana, Idaho and Wyoming, Maine’s Community Health Options and Wisconsin’s Common Ground Healthcare Cooperative — are in solid financial shape. They all operated in the black through the first six months of this year and collectively have seen enrollment grow by more than 40 percent over the last two years.
Montana Commissioner of Securities and Insurance Troy Downing, a Republican, doesn’t see any lingering controversy surrounding Mountain Health despite its Obamacare roots, and said insurance shoppers have benefited from the co-op’s persistance.
“We don’t have a lot of competition,” Downing said in an interview. “The fact that a state with a million people in it has three big competitors is a win for Montana.”
‘The co-ops were killed’
Obamacare’s co-ops were set up for failure.
The seeding of nonprofit insurance plans to stoke competition in the fledgling ACA marketplaces was a political compromise that satisfied no one. Liberals were infuriated because it wasn’t the public option that they believed was crucial to keeping for-profit insurers from jacking up prices. Conservatives pilloried the program as a woefully wrongheaded government intervention in the private market.
The end result was that the co-ops were designed with crippling limitations. Congress slashed the initial $6 billion in funding to $2.4 billion — and that funding was changed from grants to loans. In addition, the startup insurers were largely blocked by federal regulations from competing for business from large companies, leaving them to struggle in the volatile small group and individual markets.
“One of the challenges the co-ops had is that they weren’t particularly heavily capitalized,” said David Anderson, a health insurance expert at Duke University and former industry official. “Their finances were enough as long as everything went well. But there wasn’t a ton of extra cash on the balance sheet.”
Everything did not go well. The biggest blow was the federal government’s failure to make good on billions of dollars in payments that insurers were expecting to receive for attracting customers that were more costly than anticipated. That program — known as risk corridors — was supposed to provide financial stability for the first three years for insurers participating in the nascent markets, since there was no way to know how sick and expensive their new customers would be.
But the program became a pawn in the political wars over Obamacare and Congressional Republicans ultimately mandated that it be cost neutral. The upshot was that there was only enough money to pay out a tiny share of anticipated disbursements to insurers.
”It was devastating to hear that,” said Cathy Mahaffey, CEO of Wisconsin’s Common Ground Healthcare Cooperative. “I knew we were in trouble.”
For many of the co-ops, which were already on financially shaky ground, it proved to be a death blow.
Insurers sued to recoup the money they were owed — and ultimately prevailed at the U.S. Supreme Court in 2020, entitling them to roughly $12 billion in additional payments — but it was a Pyrrhic victory for most of the nonprofit startups since they had long since gone under.
“The co-ops did not fail at all,” said Morrison, the former Montana insurance commissioner. “The co-ops were killed.”
There’s some evidence indicating that even the nonprofit plans that failed did juice competition and lower prices in the fledgling market. In the 23 states with co-ops plans — Oregon had two — premiums were 8.4 percent lower on average in the first year of operations compared to states without co-ops, according to a study commissioned by the National Alliance of State Health CO-Ops.
The three remaining co-ops each endured near-death experiences, and it required some good fortune and outside assistance to enable their turnaround.
In the case of the Maine co-op, its finances collapsed in the second half of 2015, and it finished the year roughly $70 million in the red. Working closely with the state regulator, Community Health Options crafted a plan to cut costs and stay afloat. It renegotiated contracts with two major health systems, switched pharmacy benefit managers and top staffers took a 10 percent salary cut.
For Wisconsin’s Common Ground Healthcare Cooperative, 2016 was the year when the prospects for survival looked bleak. By that time, the insurer’s shortfall from risk corridors payments topped $100 million.
“I would go home at night worried about my employees losing their jobs and members losing this great nonprofit cooperative option,” said Mahaffey.
Ultimately, the insurer was able to secure a $30 million payment by selling off the proceeds from any future risk corridors payments. That meant less money in the long run, but enabled the company to stave off solvency concerns from regulators and stay alive.
For Mountain Health, a roughly $8 million “surplus note” in 2016-17 from St. Luke’s Health System in Boise was crucial in allowing it to remain in business.
“They wanted the competition in Boise, and they saw that we were good players,” said CEO Richard Miltenberger. “We’ll forever be grateful to those folks and we did pay them back as quickly as we could.”
To be sure, there are plenty of insurance experts who still believe the co-op program was a misguided boondoggle. Joe Antos, a health policy analyst at the right-of-center American Enterprise Institute, said efforts to stoke competition in the Medicare Advantage market have been far more successful because they focused on making it financially attractive to existing insurers.
“By definition, it’s a safer bet to put your money on established businesses who already know how to run an insurance business,” Antos said. “Trying to start something fresh is really taking on a tremendous burden that I think the co-op program pretty much demonstrates doesn’t work.”
Free insulin and mental health care
Quarterly financial filings for the three remaining co-ops indicate that they’re on solid footing.
Mountain Health ran a profit of $7.3 million through the first six months of this year, while the Maine and Wisconsin co-ops were operating $3.8 million and $13.3 million in the black respectively.
They’ve all seen significant enrollment growth in recent years, boosted in part by bigger federal subsidies for Obamacare customers. Mountain Health and the Maine co-op have each seen membership spike roughly 50 percent since 2021. Common Ground wasn’t far behind, with enrollment jumping by 33 percent.
The stability of the remaining co-ops stands in contrast to some of the for-profit insurers that launched around the same time. In June, Friday Health Plans announced that it was shutting down due to severe financial struggles. Similarly, Bright Health announced in October 2022 that it was exiting the Obamacare markets owing to financial distress. Meanwhile, Oscar Health, which was hailed as a tech-savvy disrupter when it launched, has lost billions of dollars over the last decade and pulled out of several states.
“Being an insurance company is really hard,” said Duke’s Anderson. “Being a health insurance company in the ACA market is even harder.”
The existing co-ops point to various ways that they’ve had a positive influence in their markets beyond simply bolstering competition.
The Maine co-op, for example, from the outset has offered members three behavioral health visits at no cost.
“It shined a light on the value proposition of that early intervention,” said Kevin Lewis, who has served as CEO of Community Health Options since its inception. “Everyone’s had to follow suit.”
Similarly, Mountain Health covers insulin for its members struggling with diabetes at no out-of-pocket cost. Miltenberger argues that the move is ultimately saving money, because otherwise some patients would likely ration the drug and end up with more costly medical problems.
“Our members are lower-income people, by and large,” he said. “I hope we’re imitated … because so far it’s proven really beneficial to our members.”
Downing, the Montana insurance commissioner, credits the co-op’s survival with taking a cautious approach that prioritized financial stability ahead of rapid membership growth.
“Our belief now is that they’re running a conservative operation that will be an option for Montana consumers and agents for quite a while,” he said.