Without expected federal funds, Arches shuts down

JOHN ROGERS

The Enterprise

Utah’s Arches Health Plan is the latest casualty to be added to the Affordable Care Act’s co-op cemetery. The insurer will shut down by the end of 2015, the state said last week.

Arches is the 10th not-for-profit co-op insurance plan to shut down this year, a list that includes the largest co-op in the nation, New York’s Health Republic Insurance. Arches blamed not receiving expected payments from the ACA’s so-called risk-corridors program for its demise. 

The health plan updated its website last Tuesday to notify members they will have to select a new carrier on the exchange when open enrollment starts Nov. 1 if they want to retain health coverage. 

“It is regrettable that the co-op model has not worked across the country,” Utah Insurance Commissioner Todd Kiser said in a news release that announced that the state was placing Arches in receivership. “We are proactively working with other insurers and the federal government to fill the vacancy left by Arches, particularly in the rural areas of the state.”

In October, the agency administering payments under the ACA, the Centers for Medicare & Medicaid Services (CMS), said it would pay only 12.7 percent of the risk corridor payments requested by plan insurers, creating a huge shortfall for insurers that had banked on those payments to offset high claims costs from sick enrollees. The feds admitted in the October announcement that “solvency and liquidity challenges” could affect smaller companies. Since that announcement, six more co-ops have said they will close by year-end. Risk corridor payments represent money promised co-op insurance companies under ObamaCare to make up for differences between premiums collected and claims paid. It generally takes new insurance companies a number of years to reach a break- even status between premiums and claims.

Arches has more than 65,000 members in Utah, of which 35,000 bought plans through the exchange or individually from brokers, according to insurance filings. The remainder of its members have programs through small employers.

With the co-op gone, Utah consumers may face even higher premiums. Prior to last week’s announcement, CMS said that the benchmark silver plan on the exchange will go up in Utah by 15.8 percent on average, but that did not factor in the closure of Arches. The state insurance department had previously approved rate increases averaging 43 percent for individual plans from Arches in 2016.

Arches’ closure leaves only one option — SelectHealth, owned by Intermountain Healthcare — for consumers in 20 rural Utah counties buying insurance on the exchange. Also left with a single choice are people in Washington (St. George) and Cache (Logan) counties. The exchange is the only option for people with low incomes to buy subsidized healthcare insurance under ObamaCare.

Receivership will allow the insurance commissioner to supervise the runoff of Arches’ existing policies. Runoff is an industry term concerning the closure of an insurance company with the least effect on the policyholders. Arches clients will be expected to pay premiums through the end of the year with the expectation that all claims will be paid. Utahns who have individual health policies through Arches should contact their insurance agent or visit Healthcare.gov during open enrollment, which begins on Nov. 1.

Co-ops were created under the Affordable Care Act as nonprofit health insurers to offer health insurance to individuals and small-employer groups. They are required to participate on Healthcare.gov and small group marketplaces, like Utah’s Avenue H, as well as the broader individual market. 

Nearby states Nevada, Colorado and Oregon, as well as six other states, have shut down co-ops in recent months.