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New health insurance co-ops struggle to survive

New companies worry about local business rivals. Some new Clark County companies have to contend with statewide or nationwide competitors even at the business formation and planning stage. Industry observers think overshadowing brands, like Blue Cross and Aetna, are one reason some co-ops fail.

Three of 22 nationwide, not-for-profit health insurance co-ops have gone belly up this year. The latest casualty is Nevada Health CO-OP, which recently announced it would close at the end of the year.

According to ratings firm A.M. Best Co., many business start-ups report losses, but over time succeed by finding new sources of capital. Growth is elusive for many health plan co-ops, unprepared to cope as financial support from the government fades.

Nevada Health's medical loss ratio was more than 103 percent in March. Customer premiums weren't keeping pace with the claims costs. The co-op also had an administrative expense ratio of over 45 percent, indicating high internal expenses also contributed to financial problems.

The health insurer's growth may have been hampered by a lack of investment, a situation plaguing other co-ops. The Affordable Care Act opened the door for non-profit health insurers to operate. Co-ops were kick-started with $3.8 billion in government loans – Nevada Health benefited by $66 million.

The co-ops are approaching a crossroads as support from ACA-generated risk mitigation mechanisms fade. By the end of 2016, the government's risk corridors and reinsurance programs will cease. Most health plan co-ops are reporting losses now -- analysts believe Nevada Health won't be the last to fold.

Co-ops also suffer because they aren't as recognizable as industry giants like Anthem and Aetna. The A.M. Best report showed administrative and medical loss ratios among most co-ops exceeded 100 percent. Some co-ops could benefit as Nevada Health folds, displacing more than 21,000 members.

Business attorneys can play a crucial role in helping companies promote growth and minimize long-term risk.

Source: Modern Healthcare, "With Nevada co-op closing, are more to come?," Bob Herman, Aug. 27, 2015

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