Small Health Insurers Fear Obamacare Could Destroy Them

As the White House tries to address consumer anger and technical problems tied to President Barack Obama's healthcare reform, its proposed fixes risk undermining a key ally in the law's newly established insurance markets.

Created with $2 billion in government loans, some two dozen not-for-profit health co-ops are meant to provide consumers with more choice in the Obamacare exchanges against far larger players like Anthem Blue Cross Blue Shield and Aetna Inc .

But they were left out of a meeting between the president and top insurance executives on Friday to discuss how to allow Americans to extend existing health policies that are being canceled for not complying with the law's new requirements.

They also fear that administration efforts to overcome technical problems with the enrollment website - by allowing insurers to directly sign up consumers - could put them at a disadvantage if consumers head to well-known names and skip comparing prices altogether.

"The co-ops are all feeling some pressure. We have to have enough enrollment to have good cash flow early in the year," said Meritus Health Partners Chief Executive Officer Kathleen Oestreich, a co-op in Arizona.

Without enough new customers, the co-ops will need more financial flexibility in the timing for drawing down on their loans, which are typically based on performance, she said.

The healthcare reform law included co-ops to help create competition on the exchanges, which the administration has said is one of the key factors in keeping prices affordable and making the marketplaces viable in the long term.

The co-ops wrote the White House on Monday, asking the administration to consider how these insurance "fixes" might affect their nascent businesses, executives told Reuters.

A few million U.S. health insurance policies are due to be canceled next year because they do not contain the benefits that the healthcare reform law requires. This has created a new political crisis for Obama, who had promised Americans that if they liked their health plan, they could keep it.

Obama last week said insurers would be allowed to extend those policies by one year, keeping noncompliant plans alive into 2015. The administration also reserved the right to offer further extensions.

The concern for the co-ops is that the large insurers' existing plans could siphon off some healthy individuals who were expected to head to the exchanges. These insurers stand to reap a double benefit, because the government has also pledged to pay them if their new members through the exchanges turn out to be sicker than anticipated.

"Incumbent carriers are going to be able to keep in their other back pocket this good business that they've already signed up for these noncompliant plans," said John Morrison, president of the National Alliance of State Health CO-OPs (NASHCO).

"Co-ops on the other hand do not have any preexisting business or a good book of business in their back pocket, and their entire underwriting results are going to be based on new business," he explained.

 

NOT-FOR-PROFIT MODEL

There are about two dozen not-for-profit health cooperatives around the country. They have been selling plans on HealthCare.gov, the error-ridden site run by the federal government for 36 states, and on some exchanges run by states. They compete against traditional Blue Cross Blue Shield plans, which are about half the market, commercial plans like Aetna, regional insurers and new entrants.

A NASHCO executive spoke by phone with the White House on Saturday and the group's members talked to each other on Sunday before sending written documents on Monday, Morrison said.

A White House official said that "the administration has ongoing outreach to many stakeholders, including co-ops."

In a letter, NASHCO asked that insurers who are keeping healthy people as customers on one side of their business not be able to draw down government risk reimbursements on the other. Co-ops have also asked not to be sidelined as the government finalizes its plans on how to make it easier for insurers to directly enroll consumers in subsidized and nonsubsidized exchange plans.

While the law has allowed insurers to directly enroll customers in both subsidized and nonsubsidized plans, the HealthCare.gov problems have made that impossible to do. Co-ops and big insurers said the government is considering a solution where they will estimate the subsidies, send the information to the exchange, and customers will reconcile any under- or overpayments at tax time.

The co-ops want to be sure that consumers get a chance to look at a snapshot of competing plans, even if they are purchasing directly from an insurer's website. That would give the nonprofits a shot at new customers.

"One concern is that whatever the direct-enrollment strategy is or whatever platforms they might use to accomplish it, that there is not an unfair advantage to the large carriers with either the technology or the brand. There is a need to do direct compare," Oestreich said.

These new potential hurdles come as Meritus and its peers are hard-pressed to sign up new members because enrollment has begun so slowly. Many of these nonprofits rely on HealthCare.gov to bring in new customers, but last week the government announced it had signed up only 27,000 people in October.

"We are experiencing a lot of the same challenges that a lot of health co-ops around the country are experiencing," said Louisiana Health Cooperative spokesman Jim Pittman, pointing to the slow pace of enrollment. The co-op has turned to paper applications and brokers to try to sell its plans, he said.

The New Mexico Health Connections co-op said it got its first premium payment this week. They have started to spend more on advertising in local media and even movie theaters.

"We struggle with how much powder do we burn now in education versus holding it for the spring," said Martin Hickey, CEO of the co-op.