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Eight of 23 health insurance cooperatives closing across country, including Ky; blame game ensues

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By Melissa Patrick
Special to NKyTribune

One-third of the 23 health insurance cooperatives created under the Patient Protection and Affordable Care Act are closing, with others likely to follow. Republicans say this is yet another failure of “Obamacare,” but health co-ops say Republicans denied them the money they needed to stay open. Others say the health co-op model is not sustainable.

Co-ops in Kentucky, Colorado, Iowa, Louisiana, New York, Nevada, Tennessee and Oregon have announced they are closing, and Insurance Business America reports that it expects this number to increase, with reports “suggesting that federal officials have a list of 11 Obamacare health insurance co-ops on the verge of failure,” but the officials won’t name them.

health coop

The Kentucky Health Cooperative is one of eight failed co-ops across the country.

The co-ops were created under federal health reform as non-profit, consumer-governed health plans, with $2.4 billion in low-interest loans. They were designed to give for-profit companies more competition and to hold down rates. The eight failed co-ops received nearly $900 million, with the Kentucky Health Cooperative receiving over $146 million.

Several of the co-ops, including Kentucky’s and Colorado’s, fully expected to overcome their losses, but couldn’t sustain the hit of not getting these expected subsidies. Kentucky’s co-op lost $50 million last year but had reduced its losses to $4 million by the end of June.

“We were on track to reverse direction and begin operating in the black, and we expected this to come about in 2016,” Glenn Jennings, who took over as CEO of the Kentucky co-op in June after Janie Miller resigned, said in a news release.

Joe Smith, chair of the cooperative’s board of directors, said in an interview, “If we had of been allowed to book the outstanding risk corridor as a receivable, we would have been in compliance with the risk requirements.”

These closures will impact almost 500,000 policyholders, according to The Wall Street Journal. That which includes 51,000 Kentuckians, who will have to seek alternative insurance for 2016. Open enrollment begins Nov. 1.

“Republicans say it’s doubtful if the federal government will ever recoup the millions of dollars in seed money the startups received,” Stephanie Armour reports for the Journal. She quotes Sen. Cory Gardner, R-Colo., as saying the money “will likely never be repaid … The years since Obamacare’s passage have been marked by crisis after crisis in health care, and it’s far past time for a new plan.”

Click here to read Kentucky Health Cooperative’s message to members about closing.
Republican gubernatorial candidate Matt Bevin said taxpayers will be responsible for paying for the losses of the Kentucky co-op, in a statement calling for an Obamacare debate with his Democratic opponent Jack Conway, who declined.

Smith, the co-op board chair, said he didn’t know what the future held related to this debt, saying it will likely be a “complicated resolution.”

“We plan to meet our obligation to members and the providers with the monies that we have available from now until the end of the year,” he said. “What happens after that is . . . who knows?”

Many of the failed co-ops, including Kentucky’s, blame their demise on a reduction in expected federal payments through the “risk corridor” program, which is meant to subsidize insurers who take on high-risk customers. These reductions are a result of restrictions that Republicans added to the omnibus spending bill last December that barred the administration from using other federal funds to make up the shortfalls. The Kentucky co-op was hoping for $77 million in risk-corridor money and got $9.7 million.

“Quite frankly, if you go back to the sequestrations, which the Republicans brought into place, it is the cause of all of this,” Smith said. “Somebody really needs to sit down and look at what Congress did over the last couple three years that has caused this to happen to most of the co-ops. They set out to destroy the Affordable Care Act and this is a piece that they found they could do.”

Insurers had asked for about $2.87 billion in payments based on their 2014 results, but the Centers for Medicare and Medicaid Services said that there was only $362 million available to make those payments, which came from collections from other insurers that had performed well, Armour reports.

Kentucky Health Cooperative sold 75 percent of the policies bought through the state health-insurance exchange and attributed some of their troubles to the fact that they attracted too many unhealthy people and thus had to pay out much more than expected in claims.

U.S. Senate Majority Leader Mitch McConnell says the idea that Republicans should take any of the blame “couldn’t be further from the truth,” and said Kentucky’s co-op, “like the others, collapsed under its own weight.” McConnell wrote in rebuttal to a political column by Al Cross in The Courier-Journal and other newspapers that said the GOP helped cause the failure of the co-ops.

On Oct. 21, McConnell said on the Senate floor, “The administration knew beforehand that this plan was not viable and that tens of thousands of people could lose their coverage. They chose to cling fast to a disastrous left-wing experiment with our health-care system over choosing stability and affordable coverage for the many people caught up in Obamacare and these failed health-care co-ops.”

Smith, asked if the Kentucky co-op has any hope of getting additional risk-corridor money, said, “I am not sure, quite frankly. From our perspective, they owe us another 60 million dollars. I’m just not sure if it is going to come or not.”

Colorado HealthOP said in a statement that the decision to close its co-op was “irresponsible and premature” and that it was “well on its way” to repaying its loans early. The co-op reported a net loss of $23 million last year.

The New York Times reports that some experts have said these new co-ops have been “hobbled” from the beginning because the “federal loans granted to co-ops to get established are typically far below the capital needed to weather the uncertainty of the first years and be able to attract enough members to be successful.” It also notes that the regulations attached to the loans make it hard to attract outside money.

In an opinion piece for Forbes, Tim Worstall, who writes that he is “not a great fan of Obamacare,” says that the failure of the health co-operatives created under the ACA “isn’t really a failure of Obamacare as such. Rather, it’s a failure of the cooperative model” in an industry that has large capital requirements, noting that the co-ops that have succeeded typically started small and have grown over time.

Armour also notes that co-ops struggle because they tend to attract younger, healthier people and, “many were required under the risk adjustment formula to pay fees to help cover the sicker patients who signed up with established carriers.”

Because of these failures, dozens of surviving health co-ops, smaller insurers and new benefit providers are forming a coalition, Armour reports, writing,”The coalition wants changes to a federal formula known as risk adjustment, which takes money from plans with healthier and younger enrollees and gives it to plans with older and sicker customers to spread out financial pressures on insurers. The health co-ops and smaller insurers say the formula, along with another health law program that aims to offset insurers’ financial losses, is putting them out of business.”

Melissa Patrick writes for Kentucky Health News, an independent news service of the Institute for Rural Journalism and Community Issues, based in the School of Journalism and Telecommunications at the University of Kentucky, with support from the Foundation for a Healthy Kentucky.

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