Evergreen Health, an innovative Baltimore-based health insurer, took a big step toward assuring its future by finalizing a deal to repay part of a federal startup loan and sever ties with the Affordable Care Act program under which it was founded.
The deal with federal health regulators, made possible by an influx of cash from unnamed investors, allows Evergreen to move forward with plans to seek state approval to convert to a for-profit insurer.
Facing financial pressure that threatened its survival, Evergreen announced in October plans to be acquired by investors and become a for-profit insurance company. But because Evergreen was one of 23 consumer-oriented and operated health plans created under and funded by the federal health law, the insurer needed federal regulators to sign off on the move.
Under the agreement with the Centers for Medicare and Medicaid Service, Evergreen will repay $3.2 million of a $65 million federal startup loan and forfeit $30 million it was due from another federal program. In exchange, Evergreen will no longer be a co-op or under the oversight of CMS.
Finalized late Tuesday, the deal comes in the final days of President Barack Obama's administration, as Republicans move to dismantle his landmark health law. Evergreen's bid to convert to a for-profit insurer preceded Republicans' Election Day sweep and came out of necessity, not choice, executives said. But analysts say that in the uncertain days ahead for health care companies, the move could give Evergreen more secure footing than other co-ops that rely on key policies from the law to draw in members.
"The most interesting part is that both because they were quick on their feet and wanted to survive, and because of chance, they may end up being one of the few co-ops that is prepared for the next era of Trumpcare," said Jonathan P. Weiner, a professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health.
Until Tuesday, Evergreen was one of only six co-ops remaining. Most of the 23 created under Obamacare have gone out of business or are in the process of winding down, unable to withstand the cost of starting up a new insurance company and the strain of federal regulations.
Evergreen, too, was hamstrung by a rule that required it to pay $24 million last year — more than a quarter of its $85 million in revenue in 2015 — to insurers with sicker members. Evergreen is paying off that debt over three years and to date has repaid about half of it.
Bringing on investors, who will take ownership of the company, and converting to a for-profit organization, was the only way CEO Dr. Peter Beilenson and Evergreen leaders saw to stay afloat.
Beilenson declined to disclose the size of the investment, other than to say it makes the insurer "vastly more secure than we were before."
"This is really huge," Beilenson said. "Honestly, it's huge."
Beilenson declined again to name the investors, other than to say they are two institutions and a group of individuals. All three investor groups are Maryland-based and in the health care field.
Approval from federal regulators and a deal to sever Evergreen's ties to the co-op program were among the first and most crucial steps to converting to a for-profit insurer.
"CMS worked closely with the state Department of Insurance to achieve the best deal on behalf of taxpayers," Juliet C. Johnson, director of the office of communications for CMS, said in a statement.
As part of the deal, Evergreen will give up $30 million it is owed from another federal regulatory program that repays insurers for losses incurred taking on new members through the exchanges. Evergreen also agreed to drop the lawsuit it filed against the federal government regarding the so-called risk adjustment program that required it to pay $24 million to insurers with sicker members.
"Removing that significant liability is an important step to the long-term, continued viability of Evergreen and it's a major step in preserving competition in the marketplace," said Maryland Insurance Commissioner Al Redmer Jr.
Next, Evergreen will embark on a months-long state process that will include a public hearing to get permission to convert to a for-profit insurer. Beilenson said he expects to file an application and necessary paperwork in March and could complete the process by July.
Evergreen has about 26,000 members, after losing about 10,000 when it was forced to leave the individual marketplace late last year while awaiting action from federal regulators.
In addition to a traditional network of doctors, Evergreen has its own health centers in Baltimore, White Marsh, Columbia and Greenbelt that directly employ doctors and offer health services to its members.
The bulk of the company's business comes from small-business health plans. Evergreen also sells to mid-sized and large companies. Once it completes the process of becoming a for-profit organization, Evergreen and its investors will discuss whether to apply to sell individual health policies again.
As a young, small insurer, Evergreen will continue to face challenges, but it is likely in a better position to adapt to a post-Obamacare market compared to the remaining co-ops, analysts said.
"There are big, big, big risks for these guys, and many of them don't have a cushion to fall back on if times get rough," said Sabrina Corlette, a research professor at the Center on Health Insurance Reforms at Georgetown University's Health Policy Institute.
Many of the co-ops relied on the insurance exchanges created under the health law to draw in new members, many of whom receive subsidies to offset the cost of their coverage. It's unclear what will become of the exchanges and subsidies, but co-ops could lose a lot of members if the programs are cut or trimmed, Corlette said.
"While this agreement means Evergreen will no longer be a health insurance CO-OP, we know Evergreen will continue to operate with the same focus on its patients and community that has made it unique from the minute its doors were open," Kelly Crowe, the CEO of the National Alliance of State Health Co-Ops, said in a statement.
Beilenson said he thinks the vote of confidence from Evergreen's new investors will reverberate beyond his small company.
"Whether you choose Evergreen or not, having another major competitor in the marketplace is only going to be good for lowering premiums," Beilenson said.