By REED ABELSON, KATIE THOMAS and JO CRAVEN McGINTY
FEB. 26, 2014 - New York Times

The rented offices of HealthyCT, a new insurer in Connecticut, bustle with the energy of a start-up. The sales force takes pride in noting that HealthyCT is a truly local outfit, governed by members, rather than a for-profit behemoth like Anthem, the state’s dominant insurer whose offices are a 10-minute drive away.

Lawmakers were hoping for that newcomer’s zeal when they added a provision to the federal health care law setting up 23 nonprofit cooperatives intended to shake up the insurance market.

“We’ve got a great story to tell,” Ken Lalime, the chief executive of HealthyCT, said recently from his office in Wallingford, Conn.

But so far, few in Connecticut are listening. Just 1,700 customers have signed up for plans through the co-op, about 3 percent of those who have bought coverage in the state’s new insurance marketplace, where other carriers, Anthem and ConnectiCare, have outpaced it. “Our goal was five times that, by this point,” Mr. Lalime said.

The story of HealthyCT and its disappointing enrollment figures illustrates how uneven the co-ops’ performance has been more than halfway through the sign-up period in the first year of the new insurance exchanges, an analysis by The New York Times shows. In contrast to Connecticut, the co-op in Maine, Maine Community Health Options, has grabbed the majority of enrollment, outpacing Anthem, its sole competitor, which is owned by one of the nation’s largest insurers, WellPoint.

How the co-ops fare will be a key indicator of the success of President Obama’s highly charged health care law because they are crucial in determining whether the law can inject more competition into the nation’s entrenched insurance market.

The co-ops were a late addition to the Affordable Care Act, proposed as an alternative to the so-called public option, a plan that would have been offered directly by the federal government and that was met with political resistance. The idea was to offer consumers more choice in areas then dominated by just one or two insurers. The co-ops received federal loans, and must be largely governed by their members.

The program is being heatedly debated in Washington, where congressional Republicans recently warned that many of the co-ops could fail, putting at risk the nearly $2 billion in government loans that helped create them. Democrats point to the co-ops as agents of change, saying they have driven down prices in areas where there was little competition.

Figures released by the Obama administration on Tuesday show that about four million people have signed up for health care coverage in the state and federal exchanges. About 300,000 have chosen a co-op, according to John Morrison, the former president of the National Alliance of State Health Co-Ops.

Some customers are seeking out co-ops because they are grateful for an alternative to the big insurers. “I personally felt like the insurance companies were one of the causes of the high health care costs,” said Aaron Verbrigghe, 28, an actor and waiter from Chicago, who chose a plan through Land of Lincoln Health, the co-op in Illinois.

Many insurers and industry experts say that simple market forces, like price, are the main factors determining the co-ops’ success so far. In Maine, for example, the co-op is offering the cheapest plans in nearly every category, while in Connecticut, the co-op charged as much as 29 percent more than rivals.

The story is the same in Michigan and Illinois, where the co-ops failed to offer low prices compared with other insurers and are struggling with low enrollment. In Kentucky, New York, New Mexico and Montana, the plans were more competitive, and are getting a larger share of the market. In all, the co-ops offered the lowest price in about one-third of the markets where they were operating, according to the analysis by The Times.

“If you look from state to state, you will see where co-ops are priced competitively, they are doing very well,” Mr. Morrison said.

Joanne Peters, a spokeswoman for the federal Health and Human Services Department, says the administration is encouraged by what it has seen. The co-ops, she said, “are providing new models for delivery of care, giving more choices and control to consumers, promoting competition, and improving quality in the health insurance market.”

She also emphasized that the administration was working closely with the co-ops to ensure that they were meeting their goals. “We have implemented a range of controls and methods to monitor and assess how they are performing,” she said.

As start-ups, the co-ops were among the hardest hit by the technical failures that marred the law’s rollout in October and November. Evergreen Health Co-op, in Maryland, whose state-based exchange continues to flounder, has signed up a meager 600 people because of the difficulty of signing up through the website, according to Dr. Peter Beilenson, the co-op’s chief executive. “We’re doing everything we can to increase enrollment,” he said.

Because the marketplaces are new, insurers were left to guess about what they should charge, and some of the co-ops — as well as some established insurers — may have guessed inaccurately. In Michigan, the co-op, Consumers Mutual, is offering several plans that are priced well above competitors, including a handful of cases where they are double the price of other carriers.

Dennis Litos, the chief executive of Consumers Mutual, said being a newcomer was a disadvantage in the state’s crowded marketplace. In Detroit, eight insurers are competing for customers. The big carriers “had prior market knowledge, as well as prior experience,” Mr. Litos said. He declined to provide enrollment figures but said the co-op was behind in its goals.

Established insurers privately question whether some co-ops that priced their plans too low could end up struggling if they end up with unexpectedly high medical costs.

Executives of several co-ops, including those with low enrollments, said they were still in good financial shape and have not yet tapped all their loans. However, the fiscal condition of many of them is uncertain: last summer, a report by the Office of the Inspector General of the Health and Human Services Department found that 11 of 16 co-ops that had been licensed at that point had estimated start-up expenses that exceeded the funding provided to them. While some have since raised outside money, others said they had not.

Republicans in Congress have questioned whether some co-ops will default on their loans. “Given its track record, I’d say this Obamacare loan program is of questionable merit,” Orrin Hatch, the Republican senator from Utah and ranking member on the Senate finance committee, said in a statement.

Mark Hall, a professor and health care expert at the Wake Forest University School of Law, said not every co-op would succeed. “Some of them will probably fail, and fail fairly quickly,” said Mr. Hall, who has advised the government on the program.

Some co-ops have added to their rolls by going outside the individual marketplace and selling plans to employers. CoOportunity Health, the co-op in Iowa and Nebraska, has enrolled more than 50,000 people in both states by aggressively selling to business owners, and enlisting insurance brokers to sell their plans. “We really thought we had to be in all the segments,” said Cliff Gold, the chief operating officer of CoOportunity Health.

Co-op leaders like Mr. Lalime say that they are counting on the eventual success of their enterprises, but that they will need to achieve more than just financial goals. The Connecticut co-op began selling plans to large employers this week, in an effort to further lift sales.

“If we start being a little Aetna or a little Anthem, that’s not going to work for us,” he said. “At the end of the day, it’s more than just a job. There’s a passion behind it.”