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March 24, 2016

State, feds at odds over how to address Community Health Options' financial woes

File photo / Tim Greenway Kevin Lewis, CEO of Community Health Options, left, and Robert Hillman, COO, in the nonprofit health insurer's headquarters within Lewiston's historic Bates Mill complex.

The federal government has rebuffed a proposal submitted by Eric Cioppa, superintendent of Maine’s Bureau of Insurance, to seek a court order to temporarily take control of Lewiston-based Community Health Options in an effort to put the nonprofit health insurer on more solid footing.

As news of that thwarted effort broke Wednesday in the Portland Press Herald, Bangor Daily News and Maine Public Broadcasting Network, Community Health Options CEO Kevin Lewis told Mainebiz that while it’s true the company had not opposed Cioppa’s proposal when he first brought it up, its financial circumstances are now trending in a positive direction.

“We felt that we had no choice but to entertain such a measure given the uncertainty at the time,” Lewis wrote in an email reply to questions posed by Mainebiz late Wednesday afternoon. “Since that discussion initiated, however, we have been able to demonstrate a much-improved financial outlook through a series of concerted efforts that are producing good results. As the superintendent put it earlier today on “Maine Things Considered,” MPBN, ‘I can’t stress enough, their risk-based capital number, which is a measure of their financial health, is a healthy number.’”

Cioppa's letter to federal government

In a March 14 letter to Kevin J. Counihan, CEO of Health Insurance Marketplace, a division of the federal Centers for Medicare and Medicaid Services, which oversees the Affordable Care Act, Cioppa provides a detailed account of CHO’s financial challenges stemming from its net loss of $74 million in 2015, which includes a $43 million reserve required by the CMS to cover an estimated shortfall in 2016 resulting from individual health premium rates that all parties acknowledge might well be inadequate to cover actual claims costs.

“Due to CHO’s 2015 results, the Bureau of Insurance has been concerned with CHO’s capital position, particularly the relationship of that capital to its larger-than-planned insured risk,” Cioppa wrote in the letter, which his office provided to Mainebiz. “Membership has grown dramatically and rapidly; the BOI concluded that it would be prudent to reduce membership to a more appropriate level.”

Cioppa’s proposal, which his letter indicates would have been undertaken with CHO’s consent, was to seek court approval to place the insurance company into a temporary receivership. Then, with approval by a court, CHO management and the federal CMS, Cioppa proposed transferring randomly a portion of the insurer’s 84,269 insured members to other insurers, notably Anthem and Harvard Pilgrim, which are also offering individual coverage under Maine’s ACA marketplace. Those customers would have been given 60 days notice and protected from “double payment of deductibles or annual out-of-pocket maximums,” Cioppa wrote.

Doing so, Cioppa reasoned, would reduce CHO’s insured risk exposure and enhance its capital position. Once those two goals were achieved, he wrote, CHO would be released from receivership.

CMS rejects plan

But CMS rejected the plan on Feb. 29, telling Cioppa his approach “could not be taken consistently with federal law” — namely, regulations mandating the “guaranteed renewability” of qualified health plans offered in the ACA’s marketplace.

In a telephone interview with Mainebiz, Cioppa said he respectfully disagrees with CMS’s position and continues to be concerned about CHO’s financial position in light of the inherent “wide variability” of potential claims in the individual market and the fact that the insurer’s 2016 premium rates were set before the company knew about the losses recorded in the final half of 2015. “To me, it’s a surgical tool I’d use with any other company under similar circumstances,” he said of the receivership proposal.

Cioppa said CHO is not alone in its struggles to balance revenues from premium payments with actual costs of insuring individuals who were previously uninsured and whose use of medical services are therefore difficult to predict. A number of large for-profit insurance providers — most notably UnitedHealth, the nation’s largest insurer that reported earlier this year it lost about $475 million in 2015 and expects to lose more than $500 million this year — have also mispriced their ACA-compliant plans.

“UnitedHealth didn’t get it right, either,” Cioppa said, pointing out, however, that CHO doesn’t have the kind of deep pockets the large national insurers have to cover unexpected losses of significant magnitude. “This population is difficult to price.”

Cioppa said his office has increased its regulatory supervision of CHO, noting that its management has worked very hard to reduce expenses and has prepared with its actuaries a detailed monthly plan for 2016. The bureau, he added, plans to post monthly reports on its website about the company’s performance going forward. “We’re trying to be as transparent as possible,” he said.

He added that the bureau also continues to work closely with CMS, notwithstanding their differences over the best way to ensure the long-term financial health of what was one of 23 CO-OP insurers created nationwide in 2011 under the ACA. More than half had failed by the end of 2015, according to the Washington Post.

But he also served notice in his letter to Counihan that the effect of CMS’s position “is to remove regulatory tools from the state regulator’s toolbox which are intended to permit resolution of a capital problem before it comes too late.”

“With decisions comes responsibility,” Cioppa wrote. “Because CMS’s decision has precluded my ability to act as proposed, CMS now must share responsibility for the risk of an outcome we all very much hope to avoid.”

Counihan had not responded to Mainebiz’s request for comment by press time.

In his reply to Mainebiz, Lewis offered reassurances that the company is financially viable, noting that even with the 2015 deficit of $31 million and having to set aside $43 million in the Premium Deficiency Reserve to cover estimated shortfalls in 2016 in the individual market, it has $50 million in capital and is showing a net improvement in the first two months of this year.

“The individual marketplace has tripled in size over the last three years, bringing newfound coverage to tens of thousands of our neighbors and community members throughout our service area,” he wrote. “Many didn’t have coverage before, and so it is only natural that they arrived into coverage with previously unmet health care needs. The good news is that our expense indicates that people are getting access to much-need care. … Put in the proper context, this is really a story of a nonprofit start-up that has hit the ground running, has demonstrated great value to its membership, and while being a bit bruised by the realization of higher claims costs has put in place a responsible and forward-looking plan so that we can continue to push ahead in providing great service and benefits coverage for our individual and group members.”


Cioppa’s letter to federal government

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