Insurance commissioner puts HealthOP on tight leash, requires special fund

By Katie Kerwin McCrimmon

Colorado’s insurance commissioner has required the Colorado HealthOP to set up a multi-million dollar fund in case losses continue to mount.

Officials at the HealthOP, which suffered $23 million in losses in 2014, say they will be raising rates for 2016 and that they are breaking even so far for the first quarter of this year.

“We feel really well positioned to make positive change in Colorado. Our financials look good. We’re doing better than projections. We met our membership targets,” said Julia Hutchins, CEO of the HealthOP, a member-governed, nonprofit health care cooperative.

But Insurance Commissioner Marguerite Salazar told a legislative oversight committee recently that she is closely scrutinizing the HealthOP. She has had her financial experts review the co-op’s finances and is continuing to do so on a monthly basis.

“I am on top of that and am watching them extremely closely,” Salazar told lawmakers during a hearing of the legislative review committee for Colorado’s health exchange on Friday. “This is a special case. They were set up to disrupt the market. In a sense, they have really done that.”

The HealthOP shook up the market last year when managers cut rates dramatically across the state, thereby reducing tax subsidies for nearly everyone who bought insurance through the exchange. The HealthOP scooped up 40 percent of the exchange market for 2015, selling plans to more customers than any other health insurance company, including Kaiser Permanente and other established insurance giants. Some critics accused the HealthOP of intentionally pricing low to buy up market share.

The nonprofit start-up now boasts about 80,000 members, 55,000 of whom bought their plans through Colorado’s exchange, Connect for Health Colorado.

Across the country, 23 health cooperatives are struggling financially and state regulators shut down one in Iowa and Nebraska. Rep. Lang Sias, R-Arvada, asked Salazar what would happen if Colorado’s co-op became insolvent.

She told him that the HealthOP currently is meeting all solvency standards, but that she has required the co-op’s managers to set up a special fund in case claims continue to exceed premiums that customers pay.

Actuaries from the state and the HealthOP had approved the HealthOP’s low rates last year, but Salazar said that as losses mounted, her team stepped in.

Colorado Insurance Commissioner Marguerite Salazar told a legislative oversight committee that she's carefully scrutinizing the Colorado HealthOP's finances.

Colorado Insurance Commissioner Marguerite Salazar told a legislative oversight committee that she’s carefully scrutinizing the Colorado HealthOP’s finances.

“We realized that those rates were not going to be adequate. We required that they set up a premium deficiency fund. We don’t require that of all the plans. We knew they were going to be deficient, so we set that up for them. They have had to put in a separate fund right now about $13 million to $14 million to safeguard (customers) because of their rates being so low,” Salazar said.

Hutchins said the HealthOP recorded a $4.6 million premium deficiency reserve in its 2014 annual statement.

Officials with the Division of Insurance were not available to explain the difference in amounts that the HealthOP is reporting compared to those that Salazar said she has required.

She underscored during her testimony, however, that she’s putting the HealthOP under the microscope.

“I have had my financial folks go in and do a review,” Salazar said. “They’re still paying their bills and they meet the solvency standards.”

If an insurance carrier does not have enough money to pay its bills, the state could take it over.

In that case, customers would get to keep using their health plans. Regulators would tap reserve funds and premiums to keep paying bills. On top of that, all carriers pay into a guarantee fund, Salazar said, and if the reserves did not cover all the bills, the guarantee fund would cover payments to providers and hospitals.

“It’s pretty safe,” Salazar said, pointing out that another health insurance carrier, SeeChange Health, became insolvent last year.

But that company had very few customers in Colorado.

“The consumer continues to be able to use their plan the way it was set up so they don’t have delays in getting to see the doctor or the doctor getting their bills paid,” Salazar said.

She noted that the HealthOP has recently been allowed to convert its start-up loans into “solvency” loans, like the other co-ops.

“That has been able to make their balance sheets look much better. That’s critical and that just happened in the last couple of weeks,” Salazar said. “We’re watching this closely and taking it month by month. We are always in constant conversation with them.”

The HealthOP is also due to receive millions in federal funds this fall. Across the country, insurance companies that took on the sickest patients and suffered extensive losses are slated to receive payments through the Affordable Care Act.

Hutchins said the HealthOP expects to receive about $25 million between August and December through the premium stabilization program.

“We certainly would welcome those funds, but our projections indicate we have adequate cash flow if they were delayed,” Hutchins said.

Health plans recently filed their proposed 2016 rates with the state. Hutchins said that the HealthOP rates overall would be going up for next year, but she declined to say by how much.

One of the challenges in pricing health insurance for this year and last was that the HealthOP grew so fast. It went from 14,000 members at the end of 2014 to 80,000 this year. It was also difficult to know how sick those patients would be.

“Projecting our financials in 2015 was very difficult. What are the health care needs of the people coming in? We were conservative in those projections because we’ve experienced a lot of people with pent up demand (for health care),” Hutchins said. “So far, we’re beating projections.”

She said very little has changed in terms of the relationship with the Division of Insurance.

“From the beginning, we’ve had a close relationship with the Division,” Hutchins said. “The state hasn’t seen a new health insurance company for a long time. We’ve always been very open with the Division, so they can have confidence and transparency. Our interests with the Division are aligned. We’re both here to look out for the consumer.”


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