Across a sea of parking spaces from a Las Vegas shopping mall sits one of the grand experiments hidden within the Affordable Care Act: a low-cost insurance startup that’s winning in the marketplace ahead of today’s deadline for the uninsured to begin enrolling.
Nevada Health Co-Op, with a storefront office designed to draw customers off the street, is among nearly two dozen “consumer oriented and operated” carriers authorized under the bill. These co-ops were designed to be private, nonprofit alternatives to the creation of a so-called public option, the government-run insurer proposed during the long health-care debate and ultimately abandoned in the final version of the law. And while Nevada’s co-op has been signing up customers only since the fall, it has already captured a third of new enrollments through the state’s health-insurance exchange.
Some of these state co-ops have struggled to gain traction, but Nevada’s and others are making a noticeable dent in their markets. The New York co-op, the largest in the nation, took a 16 percent market share of new enrollees by the end of 2013. And in Maine, where only one other insurer is selling coverage on the local insurance exchange, a new co-op has snagged 80 percent of Obamacare enrollments.
Some customers may seek out co-ops for their approach—like credit unions, they are governed by members—but the main lure behind booming enrollment is “price, price, and price,” says Martin Hickey, head of the New Mexico co-op and chairman of the National Association of State Health Co-Ops. The Nevada co-op offers the lowest rates in the Las Vegas area, which goes a long way to explaining its burgeoning market share.
Still, Nevada’s exchange website has struggled with tech glitches, much like the national healthcare.gov website, turning the co-op’s storefront office near a shopping mall into a particularly important sales asset. Tom Zumtobel, Nevada Health Co-Op’s chief executive, likes to compare the bright space to an Apple (AAPL) or AT&T (T) store, where his bilingual staff helps customers review coverage options on iPads.
“The exchange in Nevada is clunky, and when people make it through the exchange they almost feel obligated to pull the trigger,” Zumtobel says. “When they have somebody face to face, they have more comfort pulling the trigger.” He estimates roughly a quarter of those who sign up have come through the center.
Even with its rapid growth in the new Obamacare marketplace, the Nevada co-op has enrolled only about 9,000 members so far, according Zumtobel, less than half his initial goal of 20,000 customers. “We are not pleased with the whole number yet,” he says. “But we are really pleased with the market share.” He expects membership will hit 12,000 around the March 31 deadline for the uninsured to begin the enrollment process and 15,000 in the following two-month grace period. That would be enough he says, for the new co-op to cover its administrative expenses.
The co-ops all had to start with nonprofit “sponsors” to help the new insurers get off the ground, and the new insurers also received a total of almost $2 billion in loans from the federal government. Some are five-year loans to cover startup costs, but the bulk of the debt is 15-year “solvency” loans to maintain the financial reserves insurers must maintain. (One co-op, in Vermont, repaid its solvency loans and closed up shop when it was denied a license.)
The Nevada co-op took about $66 million in federal loans and found sponsorship from the health trust fund for the state’s large culinary union as well as a health association of other local unions. As part of the arrangement, the Culinary Health Fund doesn’t charge the co-op for tapping into its provider network, and Zumtobel said the relationship gives the co-op access to the volume discounts. The co-op has also adopted the union’s philosophy of keeping costs down by making it easier and cheaper for members to receive regular care: “If it costs $5 to go to the doctor,” Zumtobel says, ”people are less likely to go to the emergency room.”
The combination of federal loans and, in some states, connections with unions have forced the co-ops to deal with something most startups don’t face: intense political scrutiny. California Republican Representative Darrell Issa, chairman of the House Oversight Committee, has likened the co-ops to the failed solar-energy company Solyndra, which likewise received significant loans from the federal government. Issa argues that, like Solyndra, the insurance co-ops are financially unstable and won’t be able to repay their loans. The co-ops and their small staffs have had to respond to the congressman’s investigative requests for documents and other information. “The legal fees are expensive, and the staff time was a distraction,” says Zumtobel.
With the oft-delayed deadline for getting insurance finally here, the walk-in center this past weekend was open for extended hours on both Saturday and Sunday, and the call center was staffed and available 24 hours a day. Soon the Nevada Health Co-Op will learn if it’s gotten the rash it needs of last-minute people to sign up before the clock finally runs out.