The U.S. Department of Health and Human Services announced in December two struggling health insurance cooperatives had been given emergency solvency loans. The cooperatives, officially known as Consumer Operated and Oriented Plans (CO-OP), were established through the Affordable Care Act and received billions of dollars in startup loans from the federal government.
Wisconsin-based Common Ground Healthcare Cooperative received nearly $23 million more in emergency funds in December after having accepted more than $28 million three months earlier. The Kentucky Health Cooperative received a $65 million emergency solvency loan as open enrollment was beginning in the health insurance exchange.
Also in December, Co-Opportunity Health, a cooperative established through the Affordable Care Act to provide coverage in Iowa and Nebraska, was taken over by state regulators as it teetered on the verge of insolvency.
Brett Healy, president of the John K. MacIver Institute for Public Policy in Wisconsin, denounced the ACA bailouts as “for taxpayers … the gift that keeps on giving.” He explained, “If the ACA was truly a free market system, Common Ground would go out of business, not receive a huge taxpayer bailout. Government bailouts make this a government-run health care system, and taxpayers need a sensible and responsible alternative before Obamacare requires even more taxpayer bailouts.”
Senate Majority Leader Mitch McConnell (R-KY) also blasted the loans as a taxpayer bailout that raises serious questions about the program’s integrity. “If Obamacare were really such a success story in Kentucky, why did this co-op need a taxpayer bailout?” he told the Associated Press.
Iowa/Nebraska Co-Op Fails
Half a dozen state CO-OPs have received $355 million in emergency solvency funding since September, according to the Centers for Medicare and Medicaid Services. Other state CO-OPs receiving emergency funding included Connecticut ($48.4 million), Iowa ($32.7 million), Maine/New Hampshire ($67.6 million), and New York ($90.7 million).
Iowa-based CoOportunity Health had received a total of $145 million since 2012 and had an infusion of nearly $33 million as recently as September 2014. Despite the additional cash, CoOportunity Health’s cash reserves plummeted to $17 million by December 12th. State regulators took over the struggling CO-OP after the Obama Administration declined in December to provide it with a second round of emergency funding.
State officials say the enrollees covered by CoOportunity Health will remain covered by Co-Opportunity Health for now, but the plan is closed to new enrollees. Iowa Department of Insurance officials encouraged current enrollees to switch to other health plans before the February 15th exchange enrollment deadline.
According to its website, CoOportunity has 96,350 members, including enrollees in Nebraska.
Taxpayers Lose on CO-OP
CO-OPs have come under increased scrutiny recently. The House Committee on Oversight & Government Reform held a hearing regarding health insurance cooperatives in February 2014. During the hearing, Rep. James Lankford (R-OK), chairman of Subcommittee on Energy Policy, Health Care, and Entitlements, dismissed the CO-OP program as “an investment disaster.”
Lankford told the committee, “The Office of Management and Budget itself projected that the American taxpayers would lose over 40 percent of the funding through the CO-OP program.” As a result of solvency concerns, Congress slashed funding for the program from $6 billion down to about $2 billion.
Health insurance CO-OPs were a political compromise created during the Obamacare debate as a means to boost competition with established insurance companies, according Dr. Roger Stark, a physician and health care analyst with the Washington Policy Center. Stark testified at the Oversight & Reform Committee hearing in February.
“CO-OPs were placed in the ACA as an alternative to the ‘public option’,” Stark said. “Since they are essentially new insurance companies, the main concern with them has always been financial solvency.”
When CO-OPs were started, they had no reserves and no historical actuarial data to assist in setting plan prices, Stark noted. “Unfortunately, the American taxpayer is now the financial backstop for these ill-conceived programs,” he said.
At the committee hearing in February, Lankford estimated total taxpayer losses could approach $900 million from CO-OPs that fail and don’t repay startup loans.
Devon M. Herrick, PhD is a health economist and senior fellow at the National Center for Policy Analysis.