AM Best

A.M. Best Briefing: Viability Issues Persist Among U.S. Health CO-OPs


Wayne Kaminski
Senior Financial Analyst
(908) 439-2200, ext. 5061

Sally Rosen
Assistant Vice President
(908) 439-2200, ext. 5280
Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644


OLDWICK - AUGUST 17, 2015 01:50 PM (EDT)
The Consumer Operated and Oriented Plan (CO-OP) Program entered into its second year with challenges. The various plans had enrollments and earnings that reflected traits of start-ups, as well as the weakness of one plan's capitalization, which resulted in its shut-down.

A new Best's Briefing, titled, "Viability Issues Persist Among The Health CO-OPs," explores data collected by A.M. Best from 23 plans in the CO-OP Program through year-end 2014 and 21 plans through March 31, 2015. First-quarter 2015 data was not available for two plans.

The report states that just one plan, Colorado Health Insurance Cooperative, Inc., reported a combined ratio (99%) lower than 100%. The average medical loss ratio was 86% in first-quarter 2015, while the average administrative expense ratio was 24%, which resulted in an average combined ratio of 110%. It should be noted that while the combined ratio was over 100% at almost all of the plans, several of the plans had loss ratios below 80%, a level that is considered good. However, all but one of these plans had high administrative expense ratios, which drove the combined ratio to over 100%. The higher administrative expense ratios are reflective of lack of scale, which would enable plans to spread fixed costs over a larger membership base.

As of March 31, 2015, the CO-OPs owed USD 1.3 billion of surplus notes (also known as solvency loans from CMS). This excludes USD 130.6 million of notes that were outstanding as of Sept. 30, 2014, at CoOportunity Health, which was ordered into liquidation earlier this year. Of the measured plans in this briefing, surplus notes have increased by USD 550.2 million at March 31, 2015, compared with the surplus note balances at March 31, 2014, or approximately a 71% increase.

The majority of the CO-OPs have shown substantial enrollment growth through the first quarter of 2015. For the period ended March 31, 2015, the total membership for the CO-OPs with available data significantly increased to approximately 869,000 plan participants, from 478,000 plan participants at year-end 2014. Growth in revenue follows this membership growth; however, the majority of the CO-OPs continue to report underwriting and net losses. Excluding Maine Community Health Options, as data was unavailable at the time of publication, the first-quarter 2015 aggregate net losses reported were USD 72.4 million. In 2014, the aggregated net loss for full-year 2014 was USD 385.5 million, excluding CoOportunity Health. These losses have a negative impact on the absolute level of capital and surplus and when combined with large premium growth, can lead to deterioration in risk-adjusted capitalization. While reported losses in the early years of operation are not uncommon for start-up insurers, A.M. Best remains concerned about the capital strain shown to date by the CO-OPs. Furthermore, without external sources of funding for capital, the financial viability for some plans will be questionable.

For the full copy of this briefing, please visit .

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