According to Kaiser Health News, only seven co-ops will remain next year, down from 20 a year ago and 23 at their peak.
But Martin Hickey, CEO of New Mexico Health Connections says the cooperative here is on sound financial footing with over $63 million in reserves. The co-op’s membership has doubled over 2015 and is showing a slight first-quarter profit.
Nevertheless, Hickey said the Albuquerque-based nonprofit insurance cooperative is seeking sharp increases in its individual rates next year because it will have to pay a “risk adjustment bill” of $14.6 million to the Centers for Medicare and Medicaid Services for 2015.
And Hickey said that for long-term financial health, the co-op is considering seeking backing from private investors.
CMS relaxed several rules for co-ops earlier in 2016, making it more feasible for them to obtain outside investments.
While Hickey said the organization had retained an investment banker to source out backers, he didn’t provide details.
But according to an article in Inside Health Policy, NMHC plans to work with Raymond James, a New York City-based investment firm, to raise “a substantial amount” of funding for NMHC. The co-op hopes to have a letter of intent by September 2016, according to the publication.
The risk adjustment issue has been one of the hurdles for start-ups, and organizations like Hickey’s have expressed their concern to federal officials over the funding formula and its potentially damaging effects on the market, particularly its impact on small insurers.
Hickey said the organization isn’t contesting its risk adjustment bill.
Under the Affordable Care Act, also known as Obamacare, the federal government created a system of risk adjustment payments owed by some insurers to other firms. The program redistributes funds from plans with lower-risk customers to those with higher-risk customers. The goal is to stabilize premiums by reducing the incentive to charge high-risk customers higher premiums.
Nine co-ops still in existence are making the payments for the 2015 business year, according to CMS.
Hickey blamed the risk adjustment payment for a projected 31 percent increase in the insurer’s individual market rates in 2017. The co-op’s small and large group rates will see a 20 percent hike, he said, adding that the insurer will be able to hang on and get a larger share of the market.
“NHMC will not be materially impacted by this risk-adjustment fee,” said Hickey, who is also a physician. “Our plan remains on solid financial footing with strong reserves, and we will continue to offer health coverage for a growing number of New Mexicans who value a company that is an active partner in their health.
“This flawed process doesn’t take into account plans that do an exceptional job of adopting patient-centered model of care that keeps people healthier at lower costs,” said Hickey.
Hickey said NMHC’s 47,000 members see 30 percent fewer hospitalizations than other New Mexico insurers due to “tremendous medical management.”
NMHC had net earnings of $420,000 in the first quarter of 2016, as opposed to a loss of $2.3 million in the first quarter of 2015. NMHC received $66 million in loans from the federal government, which it must pay back.
The co-op, even after writing the risk adjustment check, still is in good financial shape, Hickey said.
By the end of the 2016 open enrollment period, 30,000 of NMHC members were individual policy holders, 19,000 of those through the state health exchange. During the year, the co-op had added several big-name employers on group plans, including Goodwill Industries of New Mexico, Youth Development Inc. and Heritage Hotels & Resorts.
New Mexico Health Connections dropped its PPO plans – plans that generally offer a greater choice of providers than managed care plans – for 2016 in order to focus on plan designs that allow them to better control costs.
Several big-name carriers around the country have taken a similar approach in 2016, and PPOs are less common than they once were in the individual market.?