Obamacare’s co-ops are about to go out of business.
Dr. Mandy Cohen, the chief operating officer at the Centers for Medicare and Medicaid Services, recently testified before a congressional subcommittee that eight of Obamacare’s 11 remaining co-op insurance plans are in serious financial trouble.
That’s not surprising. Twelve co-ops went bankrupt last year, costing taxpayers more than $1 billion.
Lawmakers should shut down the remaining co-ops and cut taxpayers’ losses before they get any worse.
Obamacare created co-ops — or Consumer Oriented and Operated Plans — in hopes of injecting competition into the insurance marketplace. The law seeded these nonprofit health plans with taxpayer funds and charged the states with running them.
To further drive home their supposed dedication to consumers, the law banned co-ops from accepting private investment or hiring insurance industry executives and those with actuarial experience. Their boards were to be comprised largely of policyholders.
Obamacare’s backers thought that the co-ops, unworried about making profits, would be able to offer very low-priced insurance — and thus put pressure on conventional insurers to lower their prices.
The administration bet big. By the end of 2014, there were 23 state-level co-ops in operation, financed by $2.4 billion in federal loans.
Both co-ops and conventional insurers had to abide by all of Obamacare’s new rules, like including at least 10 categories of benefits in each plan. Most worrisome for insurers was the law’s guarantee of coverage to anyone who applied — and at rates that could only vary by age, tobacco usage and geography. What would insurers do if a disproportionate number of older, sicker individuals signed up?
To quell these fears, the law established three risk-sharing programs that would compensate insurers if they suffered higher-than-expected losses. Each was designed to redistribute money from profitable insurers to those that posted losses.
One of these efforts — the risk corridor program — was intended to protect insurers from pricing their products incorrectly. If the claims an insurer actually paid out exceeded expectations by 3 percent, the government would make up half the losses. If actual claims exceeded expected claims by 8 percent or more, the feds would eat 80 percent of the loss.
The government planned to come up with that money by forcing insurers whose actual claims were below expectations to fork over some of the difference.
There was just one problem — there haven’t been many profitable insurers. In 2015, insurers nationwide posted just $362 million in profits — and $2.9 billion in losses.
The co-ops, in particular, fared poorly. Last year, just one of the original 23 posted a profit. The rest were paying out, on average, 15 percent more in claims than they received in premiums.
Because insurers collectively posted so much more in losses than profits, the risk corridor program received just 13 percent of its projected funding from the federal government. Without the risk corridor payments, many co-ops have imploded.
Among them was New York’s Health Republic, which, with 200,000 policyholders, was the biggest in the country. It registered a whopping $57 million loss in the first half of 2015. Those who lost coverage had one month to find a new plan.
Despite a $146 million federal loan, CoOpportunity Health left 120,000 people in Iowa and Nebraska scrambling for coverage after its collapse. More than $90 million in taxpayer dollars disappeared when Arizona’s co-op closed its doors to its 59,000 enrollees. And when Colorado’s co-op failed, 83,000 people were left without coverage — at a cost to the federal government of $72 million.
Even worse, the White House more or less knew that this would happen. According to a new Senate report, the Obama administration repeatedly ignored warnings from Deloitte and other consultants that the co-ops were ill-conceived and poorly managed.
“[Health and Human Services] was aware of serious problems concerning the failed co-ops’ enrollment strategies, pricing, financial forecasts and management before the department ever approved the initial loans,” said Sen. Rob Portman (R-Ohio), the chairman of the Senate Permanent Subcommittee on Investigations who wrote the report.
Two years after their creation, more than half of Obamacare’s co-ops are dead — and eight of the remaining 11 are on death’s doorstep. Only one question remains: will there be any co-ops left come next open enrollment season?