(AP photo/J. David Ake)

(Bloomberg) — In Maine, the insurer that has enrolled the most commercial public exchange plan customers isn’t WellPoint’s Anthem unit. The leader there is WellPoint’s only rival: Maine Community Health Options, a startup that didn’t exist three years ago.

The newcomer, funded primarily by taxpayer loans from the Consumer Operated and Oriented Plan (CO-OP) program, has won about 80 percent of the market so far in Maine’s new insurance exchange, exceeding its own expectations, said Kevin Lewis, the chief executive officer.

CO-OPs have also attained a large market share in New York, Iowa, Nebraska, Colorado, Kentucky, Wisconsin, South Carolina, Utah, Montana, Nevada and New Mexico, according to John Morrison, a board member and founding president of the CO-OPs’ trade group.

New York’s CO-OP, Health Republic Insurance of New York, is probably the largest in the country, with more than 50,000 members. It was second in market share to WellPoint’s Empire unit on the state’s exchange at the end of December, according to exchange data.

Federal authorities have approved plans by the CO-OPs in Montana, Massachusetts and Kentucky to expand into neighboring states — Idaho, New Hampshire and West Virginia – next year.

Low prices

The CO-OP program is part of the Patient Protection and Affordable Care Act (PPACA) – Obamacare.

Drafters created the program in an effort to increase the level of competition health insurance markets dominated by one or two carriers. Carriers are supposed to be member-owned nonprofits that get the bulk of their revenue from selling coverage to individuals, small employers, or some mix of individuals and small employers.

The government provided $2.1 billion in startup loans.

About 16 percent of the loans are for the CO-OPs’ startup expenses, such as leasing office space and hiring staff, and must be repaid in five years. The rest is to be saved to meet state regulatory requirements for insurers’ financial reserves, and is due in 15 years.

Obamacare opponents predicted early on that the CO-OPs would fail, and that much of the startup loan money would be lost.

During the first PPACA commercial exchange plan open enrollment period, which started Oct. 1 and is set to end March 31, the 23 active CO-OPs have enrolled about 300,000 people.

The plans have attracted enrollees by combining low premiums with a certain homespun appeal, according to company executives.

“We’re doing really well,” Lewis said in a telephone interview. Taxpayers face “no risk whatsoever” that Maine Community will go under, he said. “A lot of those early, dire concerns just need to be re-examined.”

Kristin Binns, a spokeswoman for WellPoint, declined to comment on her company’s CO-OP competition.

To be sure, some of the new CO-OPs have had bumpy starts.

Insurance regulators in Vermont refused to grant a license to their state’s CO-OP.

Exchange enrollment system problems have kept CO-OPs in Maryland, Massachusetts and Oregon from hitting their enrollment targets.

Consumers are “finding their way to us off the exchange, fortunately,” Dawn Bonder, CEO of Oregon’s Health Republic Insurance, one of two CO-OPs in that state, said in a phone interview. She estimated the company has signed up only about 4 percent to 5 percent of its customers using Oregon’s exchange.

“We’re looking at 2015 as an opportunity to just do what we hoped to do in 2014 — but with a lot of experience under our belt,” she said.

CO-OPs in Michigan and Tennessee have grown relatively slowly because their premiums have been higher than competitors’ premiums, spokesmen for the companies said.

“2014 is preparation, really, for ’15,” David Eich, a spokesman for Consumers Mutual, the Michigan CO-OP, said in a telephone interview.

The CO-OPs that have grown the most quickly “emerged as price leaders,” and those CO-OPs were responsible for more than a third of the lowest-premium plans offered on the public exchanges, according to an October report by the consulting firm McKinsey & Co.

Health insurance is a tricky business, and PPACA has made it trickier than usual this year.

Over the decades, new insurers have often tried to win share in their early days by offering low rates, only to discover later that they have created large but unprofitable, unsustainable books of business.

In the new CO-OP market, carriers that enroll many more customers than they expected, they could run afoul of state regulators who require companies to maintain cash reserves sufficient to cover medical claims in the event that they go out of business.

The CO-OPs’ startup loans included solvency reserve money based on the organizers’ enrollment projections.

The Iowa CO-OP, CoOportunity Health, which also serves Nebraska, has signed up about 54,000 members, after projecting it would enroll just 11,800 by the end of March, said Cliff Gold, the chief operations officer.

“We do have concerns about the solvency loans if we continue to grow at this rate,” Gold said. The CO-OP was signing up as many as 1,000 people a week in February, he said.

The CO-OPs have lobbied the federal Centers for Medicare and Medicaid Services (CMS), which controls the loans, to make more money available for reserves.

Congress capped spending on the CO-OPs in a budget deal signed into law in January 2013. The deal left $253 million in a “contingency fund for oversight and assistance,” according to a budget document published March 4.

“While it’s still early, we are encouraged by what we have seen so far, and we will continue to work closely with these CO-OPs to monitor their progress and assess their performance,” a spokesman for the agency, Aaron Albright, said in an e-mail.

If the CO-OPs continue to grow, Obama administration officials have promised to support them, Morrison said.

Morrison and CO-OP executives met with U.S. Health and Human Services (HHS) Secretary Kathleen Sebelius and other top administration health officials at the White House on Feb. 6 to brief them on their progress.

The officials told the companies that “if CO-OPs continue to perform well in the years ahead, the administration will look to expand the availability of CO-OPs into the remaining states that don’t currently have them,” Morrison said.

Opponents remain

Some Republicans, meanwhile, still contend taxpayers remain at risk of losing much of the money loaned to the companies. At a Feb. 5 hearing on the CO-OPs, Rep. James Lankford of Oklahoma called the program “an investment disaster,” and said there remains “the possibility that American taxpayers will be left on the hook.”

Jan VanRiper, the executive director and CEO of the CO-OPs’ trade group, told lawmakers at the hearing that the premium savings the companies have generated for consumers have “already gone a long way toward paying for loan costs” and that the CO-OPs are financially viable.

“There is no reason to worry that CO-OPs will not be paying back their federal government loans on time,” she said, according to prepared testimony. “Should it appear to their lender or their state insurance regulators that they are floundering, either or both entities will intervene well before loan funds are substantially expended.”

More than low rates

Executives at the CO-OPs with good enrollment numbers say they are offering more than low premiums.

Those executives credit their market appeal in part to innovative benefit designs, such as access to “free” doctors’ visits and “free” generic drugs, and even to offers of $100 gift cards for enrollees who get annual physicals.

In Wisconsin, many customers of Common Ground Healthcare Cooperative appreciate the company’s nonprofit, member-governed business model, according to Bob DeVita, the CO-OP’s chief executive officer.

“There’s a long-standing upper Midwest tradition with CO-OPs,” DeVita said in a telephone interview. “I think there was a lot of pent-up demand for that.”

In Windsor Heights, Iowa, 35-year-old Geoffrey Wood, the chief operating officer of Startup Genome, said he signed on for Iowa’s CoOportunity CO-OP because he had grown tired of dealing with his previous insurer, Aetna Inc.’s subsidiary Coventry Health Care Inc.

“Given the choice between them, as the incumbent company, and an innovative company trying to do something different, I didn’t feel like I had much choice,” Wood said in a telephone interview. “I decided to give the new guy a shot.”

Cynthia Michener, a spokeswoman for Aetna, said Coventry’s advantages for enrollees include experience with the Iowa health-care system and stability. She declined to discuss Wood’s case without authorization from him.

“Coventry Health Care has served Iowans for more than two decades, and knows the community and its health-care needs well,” Michener said in an e-mail. “We have long-standing experience of providing health insurance and benefits and helping members access care, and a track record of financial stability to pay claims.”

Allison Bell contributed to this report.

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