Lower-cost nonprofit insurer continues to struggle

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The executives at Minuteman Health Inc. picked the brightest orange they could find to splash across their advertisements when they launched the company three years ago, hoping to grab the attention of consumers and the broader health care industry.

But despite spending millions on advertising and promising consumers deep discounts on their health insurance, the nonprofit insurer has yet to become a household name or make a significant impact on the state's health insurance market.

Minuteman's membership has failed to meet initial projections, while expenses have exceeded them. The company has lost more than $43 million since its 2013 launch.

Minuteman is one of many nonprofit insurers created under a troubled program of the federal Affordable Care Act that was designed to inject more competition into local markets and offer lower-cost insurance for individuals and small businesses. Twenty-three of these insurers were launched two years ago with $2.4 billion in federal funds — including $156 million to launch Minuteman — but more than half of the insurers have since shut down.

Known as CO-OPs — for consumer operated and oriented plan — these insurers have faced a variety of problems. Some could not attract enough members, while others were flooded too quickly with more members than they could manage.

Jonathan Gruber, an economist at the Massachusetts Institute of Technology who was an adviser on the state and federal health care laws, said the CO-OP program was a risky venture from the outset, given how difficult it is for new companies to develop provider networks and compete with established insurance companies. But it was a risk worth taking, Gruber said, since it could pay off by giving consumers access to affordable insurance.

"They're fighting an uphill battle, even at the start," Gruber said of Minuteman and the other CO-OP insurers. "It's a very hard market to break into because creating an appropriate doctors network is all about negotiating power."

Thomas D. Policelli, the chief executive of Minuteman Health, attributes the insurer's financial challenges mostly to problems with rolling out federal health care reform. The first year that Minuteman began selling insurance to individuals and small businesses, the state's Health Connector website broke down, making it all but impossible for consumers to buy health coverage online and depressing Minuteman's membership.

In addition, Minuteman, which had $23 million in revenue in the first nine months of 2015, was slapped last year with $3 million in payments through a new federal program called risk adjustment. The payments are designed to spread the risk and cost of insuring the sickest patients by requiring insurers with healthier members to pay money to those with sicker members. Minuteman's coverage has tended to attract relatively healthy members.

In Massachusetts, the state's largest insurer, Blue Cross Blue Shield, has been the biggest beneficiary of risk adjustment payments. Smaller insurers, including Minuteman, collectively paid more than $51 million to Blue Cross last year.

Minuteman expects its risk adjustment payments will be even higher this year unless the federal program changes. Policelli is among several insurance executives across the country now lobbying federal officials to change the formula used to calculate the payments.

"It's been a tumultuous period in health care in general," Policelli said.

In its first year, when the Connector failed, Minuteman signed up fewer than 2,000 members. Last year, membership grew to about 14,000

Minuteman expects further growth in 2016, to about 23,000 members, most of them in New Hampshire, where the company expanded last year..

Those numbers are still below the 30,000 the company initially planned to enroll in its first year alone. Just to break even, a startup like Minuteman needs to sign up about 40,000 members, according to Robert Fallon, the company's former chief financial officer. Fallon left Minuteman last September after disagreements with other executives; he felt they were too optimistic with their projections for the company's growth.

Minuteman says its health insurance plans can save consumers thousands of dollars a year, compared to similar plans offered by competitors. But to keep prices down, its network of doctors and hospitals excludes the state's biggest providers, including Partners HealthCare and Beth Israel Deaconess Medical Center.

"In Massachusetts, the narrow network is an unpopular product," Fallon said, "and the people who do pick it, it's because they don't anticipate any health care needs. They're willing to take the savings."

Minuteman reported a loss of $20.2 million in 2014. In the first three quarters of last year, it posted a loss of $12.7 million.

Policelli, the chief executive, said the 2015 losses are mostly due to accounting issues, reflecting money set aside in anticipation of future risk adjustment payments. Minuteman is generating enough cash to support operations, he said, and its membership growth is in line with expectations.

"Our foundation is good," Policelli said. "We've built what we set out to build, which is a high-efficiency network with low prices."

Joshua Archambault, senior fellow at the Pioneer Institute, a right-leaning Boston think tank, said Minuteman ultimately must enroll enough members to cover its costs — including risk adjustment payments.

"Minuteman is just the new kid on the block, trying to find a way to get recognized," he said. "They have a huge challenge to be long-term sustainable, and given the track record of the other CO-OPs around the country, there doesn't appear to be others that have cracked the nut quite yet."