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New England Health CO-OP Hopes to Convert to Insurance Company Charter

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One of the last surviving Consumer Operated and Oriented Program carriers is hoping to make a new life for itself outside the CO-OP framework.

The carrier, Boston-based Minuteman Health Inc., says it will stop operating as a nonprofit, member-owned CO-OP carrier Jan. 1, 2018.

(Related: CO-OPs Go Live, Too)

The carrier hopes to get permission from regulators to reorganize itself as a traditional insurance company, Minuteman Insurance.

The Centers for Medicare and Medicaid Services, the federal agency in charge of overseeing the CO-OP system, is supposed to publish the Affordable Care Act risk-adjustment program report for 2016 tomorrow.

Affordable Care Act Risk-Adjustment Results

Minuteman Health says an early look at the 2016 risk-adjustment program results for Minuteman Health contributed to the company’s decision to get out of the CO-OP system.

The risk-adjustment program is supposed to help carriers sell individual and small-group major medical coverage without medical underwriting, without worrying about whether they will end up with more than their fair share of the sicker enrollees.

Risk-adjustment program managers in Washington are supposed to assign each enrollee a health risk score. The plans with the enrollees with the lowest risk scores are supposed to send cash to the enrollees with the highest risk scores, to compensate the plans with the highest-risk enrollees.

“Unfortunately, the program has not worked as intended,” Minuteman Health says in a statement about the results. “It has been difficult for insurers to predict their risk adjustment obligations which has led some to withdraw from the ACA market. The program also unfairly penalizes issuers like MHI that are small, low cost, and experience high growth. The significant negative impact from risk adjustment has been the principal driver of a reduction in [Minuteman Health's] surplus and capital over time.”

CO-OP Rules

Moderate Democrats developed the CO-OP system framework in late 2009, as an alternative to calls by some Democrats who wanted the Affordable Care Act to create a government-run, Medicare-style “public option” for every state.

Rules call for the CO-OPs to be nonprofit, member-owned health coverage providers.

Under the administration of former President Barack Obama, the U.S. Department of Health and Human Services, the parent of the Centers for Medicare and Medicaid Services, developed rules that prohibited CO-OPs from having ties to any existing health coverage providers, including nonprofit, member-owned CO-OPs started before the ACA became law.

Obama’s HHS also put limits on how much federal startup loan money a CO-OP could use on marketing, and it prohibited the CO-OP member owners from ever selling a CO-OP to any other party.

The ban on CO-OP sales kept CO-OPs from using their assets to get conventional bank loans or venture capital financing.

Most of the CO-OPs that went into operation in 2014 have already failed.

In 2016, the Obama administration lifted the CO-OP sale ban for failing CO-OPs.

A Baltimore-based CO-OP, Evergreen Health, recently received permission from Maryland regulators to convert to a traditional insurance company charter.

Minuteman Health’s Enrollees

Minuteman Health now has 37,000 enrollees in Massachusetts and New Hampshire. It expects to continue to operate normally until the end of the year, and it will continue to pay providers in a normal way, the company says.

“Management’s goal is to facilitate a smooth transition of members from the old entity, Minuteman Health, to the new entity, Minuteman Insurance,” the company says.

Minuteman Health publishes its broker commission schedules online.

The company has not announced any changes in its 2017 commission schedule.

— Check out CO-OP Explains Why It Thinks ACA Risk Adjustment Is Nuts on ThinkAdvisor.