Updates
July 13, 2016: add Land of Lincoln Health to this list of failed co-ops.
November 5, 2015: Health Co-Ops' Failures Spur Finger-Pointing; nonprofits' financial squeeze causes consumers to lose coverage -- WSJ:
From the beginning, the co-ops faced opposition from commercial insurers, while some Republicans opposed programs set up under the law to help offset financial losses by insurers such as co-ops, saying that amounted to a bailout. Actuaries said the co-ops would need $10 billion in funding, but they received $2.4 billion in loans.
That seed money also came with strings. The co-ops couldn’t use federal funds on marketing: One in Colorado drummed up business by having scantily clad people walk around with signs saying “Get Covered.”
Another concern were programs aimed at offsetting insurers’ financial losses on the exchanges. The Obama administration sought to spread out risks through special cost-sharing programs. The first, known as risk adjustment, distributed money from plans with healthier and younger enrollees to plans with older and sicker customers. Here, co-op officials said the formula used to determine payments left the co-ops at a disadvantage compared with larger insurers, in part due to their small market share and scarce data on enrollees’ health status from prior years.
The second setback came from a program known as risk corridors where insurers pay money into a sort of joint savings account based on their estimates of how much they would lose or make. If claims were a lot more than projected, the fund would cover much of the gap.
The hitch: Insurers sought more than they paid in, requesting $2.87 billion to cover losses but receiving only $362 million. All insurers got a fraction of what they requested, but unlike the larger companies, the co-ops and smaller insurers have little cushion to close the gap.November 5, 2015: "Collapsing ObamaCare Co-OPs Signal Big Trouble to Come," -- The Fiscal Times:
A key piece of the Obama administration’s plan to control the health insurance market is in a state of collapse. With it will go the philosophical underpinning of big government solutions to private-sector problems--and that will pose a core question for voters in the upcoming national elections.
In the original plan for the Affordable Care Act (ACA), better known as Obamacare, Democrats wanted to include a “public option” in the health insurance exchanges – a government-run plan that advocates claimed would guarantee affordable access. To critics and consumers, it looked like an end run to a single-payer health care system.
When it became clear that the public option would be a non-starter, Barack Obama and Democrats in Congress settled on a compromise: health insurance co-ops. These non-profit entities would operate under consumer control, providing an option outside of for-profit insurer plans that would focus entirely on patient care. The ACA provided for a significant amount of backing from the federal government, both in loans and in the so-called “risk corridor” funding that gave the Obama administration the option of covering losses for insurers in the first few years of Obamacare.
That backstop was necessary, advocates insisted, as insurers and especially the co-ops needed time to adjust for unknown utilization patterns, premium pricing, and the proper level of deductibles. The co-ops remained an important component for advocates of the government-controlled system, both as a check on for-profit insurers and as a proof of concept for excluding profit-based coverage entirely at some point.
Eventually, the Obama administration managed to get 23 co-ops in operation by the time of the October 2013 rollout of the Obamacare exchanges. Thanks to the risk corridor and reinsurance provisions within the ACA, those co-ops survived the first two full years of the program, albeit with the same premium pricing issues that other insurers experienced. However, the so-called “cromnibus” bill that resolved the FY2015 budget restricted HHS’ risk-corridor funding only to monies collected for that purpose, rather than through the agency’s budget or other revenue source.
As it turns out, the non-profit co-op model for health insurance turns out to be unsustainable without government subsidies. More than half of the co-ops have been shut down this year, and nine of the 12 have shut down since October 1, either by HHS or by the states in which they operate. Over a billion dollars in loans and and backstop payments have been lost.
The latest failure to be announced was in Michigan, where Consumers Mutual Insurance announced Tuesday that it would not sell insurance for 2016. The failure of these dozen co-ops has left nearly 750,000 consumers in the cold, looking for a plan from a traditional insurer at a higher price.
What happened? Predictably, the financial model that critics warned would lead to a death spiral for insurers hit the co-ops first. “They were low-cost alternatives,” Kaiser Health’s Mary Agnes Carey told PBS anchor Judy Woodruff. “If they were the lower price point, that tended to attract sicker beneficiaries. That would drive up their costs.”
More at the link.
Original Post
Nearly half of the 23 non-profit insurance plans created under Obamacare in 2011 at a cost of $2.4 billion have announced they will close by the end of the year.
Utah’s Arches Health Plan on Tuesday became the 10th health insurance co-op to announce that it was closing its doors.
The move comes soon after the Obama administration’s decision on Oct. 1 to provide just 12.6 percent of the $2.87 billion that insurers were seeking to offset losses caused by unexpectedly high coverage costs.
That decision -- to decimate funding of a “risk corridor” program designed to reimburse insurers hammered by excessive losses due to a disproportionate share of very sick or elderly enrollees -- is triggering a mass exit of these co-ops from the market.
With a new Affordable Care Act enrollment period beginning on Sunday, many of the co-ops on shaky financial ground must decide before then whether to remain in business or shut their doors.
At least thus far, the Republican-controlled Congress has proven indifferent to their plight and officials in the Department of Health and Human Services have been unwilling to intervene. As a result it is likely that other co-ops will announce they are going out of business by the end of this week. GOP lawmakers say the only solution to the problem is to scrap Obamacare and start over.
Does anybody even care any more? The third paragraph above suggests that even the White House no longer cares.
There seems to be a bit of irony in this story. The GOP, who wanted to defund ObamaCare couldn't do it. But, here, now we have the architect of the eponymous plan, President Barack Obama himself defunding the ObamaCare co-ops.
There seems to be a bit of irony in this story. The GOP, who wanted to defund ObamaCare couldn't do it. But, here, now we have the architect of the eponymous plan, President Barack Obama himself defunding the ObamaCare co-ops.
