Evergreen Health, once considered among the most successful of the health insurance co-ops formed under the federal Affordable Care Act, will be acquired by a consortium of private investors and converted to a for-profit insurance company, its CEO, Dr. Peter Beilenson, said Monday.
The deal would allow the Baltimore nonprofit to remain in business but is another blow to a key provision of the federal health reform law, which established such consumer-oriented and -operated health plans, or co-ops, as a way to improve competition in the insurance marketplace and help stem rising prices.
Only six of the 23 co-ops launched nationwide remain, including Evergreen, which insures 38,000 people in Maryland. The rest closed or are in the process of winding down, unable to attract enough members, draw enough premium revenue and withstand the weight of new and costly regulatory hurdles created under the health reform law.
"It really was envisioned that the plans would be nonprofits that would plow any profits back into the benefits, so that ultimately the beneficiary of their success would be the consumer," said Sabrina Corlette, a senior research professor at the Center on Health Insurance Reforms at Georgetown University's Health Policy Institute. "By converting to a for-profit, while it may be essential to Evergreen's survival, now the reapers of any success will be investors, not the members — that's unfortunate."
Any acquistion must be approved the Maryland Insurance Administration and the federal Centers for Medicare and Medicaid Services, which loaned Evergreen $65 million of seed money and initially prohibited such conversions by the co-ops.
Evergreen declined to disclose the identities of the investors or the financial terms. If approved, the deal could close in the first quarter of next year.
One of the few co-ops to report a profit, Evergreen was crippled by new insurance rules that required it to make a "risk-adjustment payment" that amounted to $24 million for 2015 — more than a quarter of its $85 million in revenue. Beilenson blamed the payment program for Evergreen's inability to remain an independent nonprofit
"It's not that we're a failure — we did what we could to survive," Beilenson said. "It's that this risk adjustment basically forced our hand."
The risk-adjustment program, which aims to level the playing field for insurers taking on riskier customers under the health reform law, requires those with the healthiest members to make payments to those with the sickest members. The payment is based on the overall health of each insurers' members, compared to each state's average.
In Maryland, most of the payments went to CareFirst BlueCross BlueShield, the state's largest insurer.
Evergreen sued the federal government in June over the rule, saying the risk adjustment program favors older, more established companies and put small firms at a disadvantage.
Beilenson said he is disappointed to lose the organization's nonprofit status, but he thinks the change to a for-profit company will benefit the insurer's members.
"It's a little bit of a bittersweet moment because forces outside our control have forced us to make this move," Beilenson said.
Bringing in a group of private investors will improve Evergreen's financial stability, making it possible to invest in new programs aimed at improving health and growing membership. Stronger financial backing also will mean Evergreen can invest in more sophisticated technology that could help reduce future risk-adjustment payments, by picking up on subtle signs of illness among members, Beilenson said.
The company's name will remain Evergreen Health and Beilenson said he does not expect the deal to change Evergreen's daily operations — or members' experience.
Dr. Martin Hickey, board chair of the National Alliance of State Health Co-ops, applauded Evergreen for finding a way to maintain operations, as many of its peers simply shut down.
"Evergreen Health has forged a creative and innovative path forward that ensures Marylanders will still have access to the lowest-cost individual plan on the state marketplace in 2017," Hickey said in a statement. "Evergreen's agreement also preserves needed competition on the marketplace, and protects some of the initial investment taxpayers made when co-ops were seeded with low-interest loans. This solution puts Evergreen in a strong position for future success."
Corlette agreed that Evergreen's pivot protects members who would otherwise need to find another health plan — a difficult process that other states have struggled to manage, she said.
"Look, out of 23 co-ops, there are six remaining — so is it better to not only have nothing but have what has been in many states a very challenging transition for enrollees, or is it better to maintain the integrity of that nonprofit status?" she said. "I guess I would probably argue to have an alternative in the market."
On the other had, she said, "when you shift to a for-profit status, it changes your mission, it changes your outlook, it changes how you service enrollees."
As part of the review of the deal by the Centers for Medicare and Medicaid Services, Evergreen and its investors will negotiate repaying part or all of the $65 million start-up loan, Beilenson said.
The original terms of the loans prohibited co-ops from converting to for-profit companies or being acquired by a for-profit operation, but as more co-ops shut down, the agency changed its rules in May.
Evergreen said both state and federal regulators are aware of the organization's intentions.