InHealth Mutual, Ohio’s nonprofit Consumer Operated and Oriented Plan (CO-OP) established by the Affordable Care Act (ACA), is shutting down due to losses sustained while insuring 22,000 people.
At request of the Ohio Department of Insurance (ODI), an Ohio county judge granted ODI control over the CO-OP as it winds down operations, pays out current claims, and is liquidated, according to ODI’s May 26 press release. ODI advised members to switch to a plan offered on the federal Obamacare exchange within 60 days in order to maintain their federal health care subsidies.
Too Subsidized to Fail?
InHealth Mutual is the 13th of the 23 CO-OPs to fail. Ohio’s CO-OP has received more than $129 million in federal loans, according to the Centers for Medicare and Medicaid Services.
Under ACA, Congress authorized the federal government to subsidize nonprofit CO-OPs to compete with for-profit insurance companies selling plans in Obamacare marketplaces.
The announcement of InHealth Mutual’s failure comes months after a U.S. Senate subcommittee found the U.S. Department of Health and Human Services (HHS) knew the high risks of the CO-OP business model when HHS invested $2.5 billion in the 23 CO-OP programs, Health Care News reported in May.
On May 10, a federal district court ruled unconstitutional payments totaling $175 billion—made over 10 years—that HHS had begun making to insurers in the Obamacare exchanges.
Inaccurate Projections, Premium Hikes
Coordinated Health Mutual Inc., the Ohio CO-OP’s holding company, had set aside $32 million to provide InHealth Mutual with a financial cushion to cover a 2016 premiums shortfall, Columbus Business First reported on May 26. Claims exceeded premiums by $28 million alone in the first quarter, and with claims being filed at $3 million per week on average, InHealth Mutual would have had to increase premiums by 60 percent in 2017 to avoid insolvency, the paper reported.
Rea Hederman, executive vice president of The Buckeye Institute for Public Policy Solutions, says the premium hikes InHealth Mutual needs are comparable to those requested by for-profit insurers, which have more freedom to make market-based decisions.
“The Ohio CO-OP would have needed to raise premiums by 60 percent, but this shockingly high number is not unique, with other insurers in other states asking for a similar level of premium hikes,” Hederman said. “Other insurers are narrowing networks or leaving the individual market, but this option is not available to the CO-OPs.”
Josh Brown, a health policy analyst and attorney who represents clients before the Ohio General Assembly, says states are disinclined to bail out CO-OPs lacking the federal funding necessary to fulfill residents’ claims.
“The CO-OPs were relatively high-risk propositions to start with,” Brown said. “States have refused to cut these CO-OPs breaks, because their job is to protect their residents.”
Hederman says the ACA failed to control health care and insurance costs or establish a CO-OP model that could keep pace with those costs.
“Every CO-OP is likely to fail, since they cannot control costs,” Hederman said. “The ACA has few provisions to control costs, which is why many insurers are losing money and exiting certain markets.”
Solution: Cut CO-OP Losses
Although frustrating for policyholders, the collapse of nonprofit insurers’ unsustainable model established by the ACA is a natural and relatively healthy progression, Brown says.
“The solution is already in place: Congress did not fund the federal element of their business model, and the CO-OPs have failed because they cannot sustain their model without that money,” Brown said. “The loss of the plans is a difficulty for the policyholders, but they should have no problem getting new policies.”
The challenge for policyholders is affording those policies with federal assistance that could prove as unreliable as InHealth Mutual, Brown says.
“With the ACA’s open-enrollment policies in place, the current problem is not access to policies, but the cost of them,” Brown said. “Subsidies are provided to mitigate costs, but the whole system is not sustainable on a long-term basis.”
Hederman says individuals insured through Obamacare CO-OPs will remain at risk of financial insolvency unless ACA is repealed and replaced.
“The Affordable Care Act has fundamental problems, and the law would need to be replaced to fix the CO-OP problem,” Hederman said.
Michael McGrady ([email protected]) writes from Colorado Springs, Colorado.
“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: https://heartland.org/policy-documents/majority-staff-report-failure-affordable-care-act-health-insurance-co-ops
Image via Thinkstock