As ACA Co-Ops Go Under, Advisors Are Left in the Lurch

It has been a rough year for health insurance co-ops established under the Affordable Care Act (ACA). At least a dozen of the 23 co-ops have failed, resulting in hundreds of thousands of policyholders and their advisors scrambling to line up alternative coverage.
And because the defunct co-ops received approximately $1.24 billion in loans from the federal government, these failures have cost taxpayers and the federal treasury. More troublesome, most of the surviving co-ops are in a precarious financial state, according to a report from the Inspector General of the Department of Health and Human Services.
But it doesn’t end there. A rough year for co-ops has led to troubled times for approximately 740,000 policyholders who have lost coverage and for health insurance advisors who have been told that commission payments are in jeopardy.
CoOportunity Health, which operated in Iowa and Nebraska, was one of the first co-ops to go under when it closed in February 2015. NAIFA Trustee Chuck Olson of Omaha says the closure hit many NAIFA-Nebraska members hard.
“This was horrible for advisors and a major inconvenience for consumers,” Olsen said. “A number of advisors had added staff and expanded their operations to handle the increased business. Now, not only is that business gone, but with the bankruptcy advisors were told they wouldn’t receive commissions for the work they had already done.”
ACA co-ops are designed to be private non-profit insurers that underwrite ACA-compliant plans and are entities owned by their policyholders, similar to a mutual insurance company. Co-ops, which are subject to all state insurance licensing requirements and financial standards like other insurers, are intended to compete in the individual and small group health insurance markets.
But unlike other insurers, many of the co-ops have taken on significant risk without the necessary capital to remain solvent. In a recent report by the Wall Street Journal, the failed co-ops priced polices too low to generate the needed revenue to pay claims and ensure profitability. The co-ops also had access to a limited pool of capital, as Congress made major cuts to the federal loan program established to pay start-up costs. These factors, along with a higher than expected number of claims, led to the current situation.
For advisors and their clients, the co-ops often looked like a good deal. The Iowa-Nebraska co-op boasted “prices 30 percent below the market and still promised agents fair commissions,” Olsen said. “The co-op relied on the expertise of professional advisors to distribute the product with the promise of compensation. Some agents had moved their entire block of clients over.”
But when the co-op declared bankruptcy, it was taken over by insurance regulators. The Iowa insurance department, which oversaw the co-op, decided to suspended commission payments to agents. Many agents who enrolled consumers in the co-op were facing the prospect of losing significant revenue owed to them and feeling the strain on their businesses.
NAIFA-Nebraska and NAIFA-Iowa lobbied promptly by first sending letters and then immediately meeting with regulators to get this decision reversed. Due to those critical efforts, agents will be placed higher in the bankruptcy process of the co-op to retrieve payments owed. State insurance regulators are working to receive funds from ACA risk programs to enable the co-op to meet some of its financial obligations, which include compensating agents. It is not known when the co-op will receive such funds and is uncertain how much advisors can recoup.
“We’re not sure how it will ultimately play out,” Olsen said. “Agents were moved into the upper ranks of debtors to be paid, above $140 million owed the U.S. government, but we just don’t know how much money will become available.”
A similar situation is now occurring in Colorado, where the failed co-op announced that it would suspend commission payments to agents for the final two months of this year.  Equally troubling, the co-op in Michigan, which will shut down at the end of this year, is now under the control of the state insurance department and therefore cannot legally pay commissions on policies sold prior to November 13, 2015. Advisors who are owed commissions will soon have to file claims to receive those payments through a process to be set up by the co-op.
NAIFA-National urges NAIFA state association executives and their government relations teams to be on the lookout for any co-ops that might be in financial trouble and to meet with the appropriate regulators to make the case for the continued payment of agent commissions.
“This is definitely something advisors in other states need to be aware of,” Olsen said. “They need to be ahead of the curve rather than just waiting for it to happen.”
“People put their trust in these co-ops and it ended up hurting consumers and hurting agent reputations,” he added. “What it comes down to is that we do what’s right for the client every time. We hope regulators will do what’s right for us.”
  • Posted December 18, 2015 IN

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