President Obama’s health care overhaul created 23 state-based insurance companies. So far, 12 of them have collapsed. Nine closed up shop this fall alone.
The reason? Well, these government-backed insurers — known as Consumer Operated and Oriented Plans — took their “nonprofit” status a bit too seriously and went bankrupt.
Michigan’s co-op just announced it will close because it wasn’t making enough money. As a result, more than 27,000 customers must now find insurance elsewhere. The announcement comes days after Arizona’s co-op also shut down for the same reason.
The co-op scheme is proving to be one of the most misguided parts of the entire ObamaCare project. These insurers have lost billions of taxpayer dollars and left more than 740,000 people scrambling to find health coverage. And the situation will only grow worse.
ObamaCare established co-ops to provide exchange enrollees with low-cost insurance. The idea was that co-ops — unconcerned with maximizing profits — would offer exceptionally cheap plans and put competitive pressure on traditional insurers to lower their prices.
Things haven’t exactly gone according to plan.
The problem is that these co-ops have been taking in less money in premiums than they’re paying out in benefits. Over the first half of this year, ObamaCare’s co-ops lost nearly $200 million — despite $2.4 billion in inexpensive loans from the federal government. Today, all but one of the 23 co-ops has lost money.
The mounting financial pressure has forced many to simply shut down.
Consider Arizona’s co-op. Since it opened in 2012, the non-profit lost over $78 million. With even more losses on the horizon, the co-op was forced to close just two days before ObamaCare’s open enrollment period started on Nov. 1.
A few weeks ago, the Kentucky Health Cooperative collapsed. At the time, it had the second-highest enrollment among all the co-ops in the country and had enrolled 75% of the patients on Kentucky’s exchange. But it was running a “medical loss” ratio of 158%, meaning it was paying out $1.58 for every dollar it received in premiums.
That’s not a sustainable cash flow. And despite receiving $146.5 million in taxpayer-financed loans, the Kentucky Health Cooperative was deep in the red.
Likewise, Iowa’s CoOportunity Heath liquidated in January and forced its 120,000 enrollees to find new coverage. Colorado HealthOP and Oregon’s Health Republic, which together covered nearly 100,000 people, have also recently gone under.
The government was supposed to provide a financial backstop for the co-ops. ObamaCare empowered federal authorities to reimburse co-ops for their losses, technically known as “risk-corridor claims.”
However, officials ultimately decided that they would cover only about 12% of claims, so the co-ops have been left to eat 88 cents out of every dollar in losses.
But the failure of the co-op system isn’t surprising.
Several states have flirted with such a system before and rejected it because of cash flow issues. Vermont, home to Democratic presidential candidate Bernie Sanders, denied licensing for a proposed co-op because its managers did “not show sufficient evidence that it will be able to sustain solvency, repay its federal loans and gain enrollment.”
As the co-ops have collapsed, the traditional insurance industry has rapidly consolidated. The top three national insurers — Anthem, Aetna, and UnitedHealth — have all been on acquisition sprees, buying up smaller competitors such as Cigna and Humana. And their rolls have swelled as co-op patients come back onto the private insurance market.
This consolidation has been expedited by the expansive array of new controls on pricing and benefits that ObamaCare places on insurers.
Large, incumbent firms are best situated to handle this burden. They have the resources and technical expertise to appropriately adjust their offerings. Small and mid-sized insurers don’t. So, in order to survive, they’ve been selling themselves to larger operations.
The ObamaCare co-op system is a failure, especially for patients. And it’s costing American taxpayers billions of dollars — and counting.