More Than Half of ACA Health Insurance CO-OPs Fold, Senate Reports

Published April 15, 2016

Twelve of the 23 nonprofit health insurers, which received a total of $1.2 billion in federal loans under the Consumer Oriented and Operated Plan (CO-OP) program, are either out of business or slated to collapse at the end of 2016, according to a March 2016 majority staff report by the U.S. Senate Permanent Subcommittee on Investigations titled “Failure of the Affordable Care Act Health Insurance CO-OPs.”

The Affordable Care Act (ACA) authorized the federal government to subsidize nonprofit health insurers, called CO-OPs, to compete with for-profit insurance companies selling plans in Obamacare marketplaces. Many CO-OPs initially offered less expensive plans, attracting greater-than-usual numbers of sick enrollees, who cost more to insure.

To manage CO-OPs’ financial risk, the law established a sliding scale called a “risk corridor.” Under the risk corridor, CO-OPs keep profits or absorb losses that fall within 3 percent of their cost projections. Portions of profits above 3 percent go to the Centers for Medicare and Medicaid Services (CMS), and CMS redistributes those profits to CO-OPs with losses greater than 3 percent.

Big Losses

Losses in the CO-OP risk corridor exceeded profits. CO-OPs applied for reimbursement of $2.87 billion in 2014. CMS has agreed to pay $367 million, a 12.6 percent proration rate, CMS stated on October 1, 2015.

One of the collapsed CO-OPs, Health Republic Insurance of Oregon, has filed a class-action lawsuit against the federal government with hopes of winning up to $5 billion to recover insurers’ losses, The Daily Signal reported on March 3, 2016.

To guard against additional defaults on federal loans, eight of the remaining 11 CO-OPs are receiving “enhanced” federal oversight and undergoing a damage control program to ensure they stay open, The Daily Caller reported in February. CMS calls these oversight programs “corrective action plans.”

Risky Business

The U.S. Department of Health and Human Services (HHS) knew of the high risks inherent in this business model when it invested $2.5 billion in the CO-OP program, according to a U.S. Senate Committee on Homeland Security and Government Affairs Permanent Subcommittee on Investigations (PSI) report published on March 10, 2016.

According to PSI, Deloitte Consulting LLP, a firm HHS had placed on retainer, had “notified HHS of several significant weaknesses in the CO-OPs’ business proposals,” including deficiencies in maintaining enrollment, fiscal responsibility, and overall management.

“HHS approved the failed CO-OPs despite receiving specific warnings from a third-party analyst about weaknesses in their business plans,” PSI’s report said.

The HHS Office of the Inspector General had raised concerns about CO-OPs’ low enrollment rates and the program’s high cost in a 2015 report.

Federally Run Failure

Marc Joffe, a senior policy analyst at the California Policy Center, says the CO-OPs’ failures illustrate the high risk and low reward of basing health care solutions on government rather than the market.

“The failure of CO-OPs is a strong point for market-oriented people, because [Sen. Bernie] Sanders-types say private insurance companies steal from people,” Joffe said. “The CO-OPs are not-for-profit, they are federally run, and they are failing.”

Joffe says the private sector provides the best solutions for resolving health care coverage problems.

Obamacare Casualties

Nathan Nascimento, senior policy advisor and director of state initiatives at Freedom Partners, says the CO-OPs’ failure is rooted in the ACA itself.

“The overall economics of Obamacare have not worked,” Nascimento said. “Increased mandates, crushing regulations, and costs have caused nearly all health insurers to lose money. These CO-OPs are just the first casualties of those policies.”

Nascimento says Congress should repeal the ACA to clear the way for market solutions.

“The only option for people is for Obamacare to be fully repealed,” Nascimento said. “We know free-market policies will help bring down costs through increased competition, new and innovative ways to deliver care, and robust opportunities for choice and access, whether people have health insurance or not.”

Michael McGrady ([email protected]) writes from Colorado Springs, Colorado.

Internet Info:

“Failure of the Affordable Care Act Health Insurance CO-OPs,” Majority Staff Report, U.S. Senate Committee on Homeland Security and Government Affairs Permanent Subcommittee on Investigations, March 10, 2016:

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