Health Insurance CO-OPs Fight Insolvency

Commentary by Devon Herrick

Source: Heartland

The U.S. Department of Health and Human Services announced in December that two struggling health insurance cooperatives were 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 received just over $28 million three months earlier. The Kentucky Health Cooperative received a $65 million emergency solvency loans as open enrollment was beginning in the health insurance exchange.  

Also in December Co-Opportunity Health, another cooperative established through the Affordable Care Act providing 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, telling the Associated Press, "If Obamacare were really such a success story in Kentucky, why did this co-op need a taxpayer bailout?"

Iowa/Nebraska Co-Op Fails

According to the Centers for Medicare and Medicaid Services, half a dozen state CO-OPs have received $355 million in emergency solvency funding since September. Other state CO-OPs receiving 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 cash infusion, CoOportunity Health saw its cash reserves plummet to $17 million by December 12th. The struggling CO-OP was taken over by state regulators after the Obama Administration declined to provide it with a second round of emergency funding.

State officials say the enrollees covered by CoOportunity Health will continue to be covered 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 on February 2014. During the hearing representative James Lankford (R-OK), chairman of subcommittee on Energy Policy, Health Care and Entitlements, dismissed the CO-OP program as “…an investment disaster.”

Chairman 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 health care 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 told Health Care News. “Since they are essentially new insurance companies, the main concern with them has always been financial solvency.”

Stark explained that when CO-OPs were started they had no reserves and no historical actuarial data to assist in setting plan prices. “Unfortunately, the American taxpayer is now the financial backstop for these ill-conceived programs,” he concluded.

At the Committee hearing in February Chairman Lankford estimated taxpayer loses could approach $900 million.