A year ago, 23 start-up health insurers spawned by the Affordable Care Act and funded with federal loans dotted the country.

Today, fewer than half of those nonprofit insurers are left standing, including Portland-based Oregon’s Health Co-op.

Open enrollment ended scant weeks ago, with once-dominant Moda Health making news when regulators briefly portrayed it as in dire straits. In light of continued upheaval in Oregon, the co-op’s survival story is significant because of what it says about the state’s individual market, where nearly 250,000 Oregonians who are not on Medicare buy their own policies. There, insurers have taken massive losses, followed by dramatic rate increases that hit consumers hard.

While some of its larger competitors have faltered, however, Oregon’s Health Co-op has been able to defy the odds through a combination of caution and pure luck, despite early clashes with state regulators and being placed on a federal watch list last year.

Phil Jackson, CEO of the co-op, says the company came out of 2016 open-enrollment season with about 20,000 members, which is right where he wants to be: Poised to hit goals, while not stretching the co-op’s finances beyond acceptable levels.

“We’re feeling pretty good,” Jackson says.

Dawn Bonder heads Health Republic, another Oregon co-op that last fall announced it would phase out of business rather than risk exposing members to a mid-year insolvency. She wishes Jackson good fortune, while suggesting he might need it.

“We found it to be a really tough market, and we wish them all the luck in the world,” she says of her erstwhile competitor. “We hope that market conditions have dramatically changed in 2016 and they find success.”

Feds seek more competition

After passing the Patient Protection and Affordable Care Act, Congress appropriated $2 billion to launch start-up insurers for the 2014 plan year. The start-ups were intended to increase competition in states, many of which were dominated by only a few large health insurers.

Each COOP, which stands for consumer operated and oriented plan, is run by a board with a majority elected by members.

Oregon received two co-ops, despite the state being consistently ranked as having one of the most competitive health insurance markets in thenation.

The federal government awarded each nearly $60 million in loans. But with about a dozen established insurers already competing to serve the state’s individuals and businesses, the co-ops faced difficult odds.

“It’s a really, really tough industry to be a start-up and to get critical mass,” Bonder says.

Then headed by Ralph Prows, Oregon’s Health Co-op had intended to beat the market with creative plans and competitive rates. But Oregon insurers featured far lower premiums in 2014 than expected, lower than much of the country. The co-op’s rates fell in the middle of the pack.

As a result, the co-op drew less than 1,600 members, well short of the nearly 35,000 it expected in its first year. Problems with the state’s ill-fated enrollment website, Cover Oregon, didn’t help.

Benefiting from early stumbles

As things turned out, the co-op’s abysmal enrollment boosted its odds of long-term survival.

The mix of enrollees in 2014 turned out to be sicker and more costly than expected. Oregon’s insurers took massive losses as premiums did not cover costs.

The co-op lost nearly $7 million — far worse than the $5 million gain it had projected. But its poor enrollment limited its exposure to the sicker-than-expected pool of enrollees.

The competing co-op headed by Bonder, for instance, enrolled nearly 15,000 members — almost 10 times the mark of Oregon’s Health Co-op. But she saw losses of $14 million, a number twice as big as her co-op competitor.

It was a similar story on the national scene, according to a federal review of the co-ops. Though only three co-ops performed worse than Oregon’s Health Co-op in enrollment, only five co-ops lost less money in 2014. Many of them lost a lot more.

The following year, the co-op tried to cut premiums drastically to gain market share, setting up an unpleasant political standoff with state regulators who approved much higher rates.

The loss on rates may have worked in the co-op’s favor, however. Oregon’s Health Co-op saw higher-than-projected losses in 2015, but the higher premiums required by the state contributed to lower-than-projected enrollment numbers. Had enrollment been higher, the company’s losses could have been worse.

Going onto watch list

In 2015, federal officials overseeing the co-ops put several of them, including Oregon’s Health Co-op, under “enhanced oversight,” requiring a plan to stabilize its finances.

Later that year, the federal government announced it would provide far less money than promised to offset insurers’ losses from big claims. This contributed to a wave of failures in the co-op program, including that of Health Republic.

The decision is what brought Moda to the brink of insolvency, causing state officials to take partial control of the firm earlier this year. A plan to inject $180 million recently drew state approval, allowing resumed operations for the once-dominant firm.

Meanwhile, Oregon’s Health Co-op keeps chugging along.

Prows, the former CEO, says the co-op never counted on the federal cash, unlike insurers, such as Moda, who’d booked the entire expected sum in its rate filings. “We didn’t really trust that (the federal money) would be delivered to us,” he says.

Ira Zarov, chair of the co-op’s board, says the co-op is doing its best to adapt to changes in the federal program as well as the surprisingly volatile market. “That’s the world we live in, and that creates challenges,” he says, “but ones that we think are surmountable.”

By Nick Budnick
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