Another One Bites the Dust: Risk Adjustment Program Claims Connecticut's Co-op

Days after CMS data showed that small insurers were battered by the risk adjustment formula for the second straight year, regulators in Connecticut moved to protect 40,000 policyholders by placing a co-op plan there under an order of supervision—and laid the blame squarely on the financial burden of the program created by the Affordable Care Act (ACA).

Connecticut Insurance Commissioner Katharine L. Wade today said that HealthyCT, a consumer oriented and operated plan, or co-op, would be barred from writing new business or renewing existing business immediately, following word June 30, 2016, that it must pay $13.4 million to CMS under the ACA’s Risk Adjustment Program.

“As a result, it became evident that this risk adjustment mandate would put the company under significant financial strain,” Wade said in a statement. “This order of supervision provides for an orderly run-off of the company’s claim payment under close regulatory oversight.”

Risk Adjustment is a provision of the ACA designed to keep insurers from steering clear of consumers with pre-existing medical conditions. Each year, it requires those who have lower-risk enrollees to transfer funds to those with higher risk clients. But multiple critics say it unduly disadvantages newer insurers, especially co-ops, that have lower rates and less experience in the market. Only 10 co-ops remained as of last week, according to CMS data.

On June 15, 2016, a Maryland co-op, Evergreen Health, sued CMS over the program, and on Friday New York regulators called for immediate changes. CMS has said it plans to rework the program by 2018, but many state regulators say that will be too late for regional insurers that are essential to create healthy, competitive insurance markets.

In New York State, Department of Financial Services Superintendent Maria Vullo sent a letter Friday that she was "very concerned" that smaller, newer insurers will pay millions of dollars into the pool because they appear to have healthier clients, largely because they haven't generated sufficient patient records yet.

The failure of the Connecticut’s co-op will surely bring howls that yet another of the 23 original co-ops has gone under. In March, an analysis in the Fiscal Times found that despite start-up loans and grants, most did not achieve enrollment projections and others failed due to cuts in risk corridor funding. But burdensome regulations hampered success, too—another analysis noted that the co-ops were barred from hiring people who had ever served in senior leadership at insurance companies—in other words, the kind of people with the experience needed to guarantee success.