Are Obamacare’s 22 Health Insurance Co-ops Near Financial Collapse?

Ominous signs are proliferating among 22 Obamacare health insurance co-ops of imminent financial collapses that could leave more than a million Americans without coverage, according to a Daily Caller News Foundation Investigative Group analysis.

All but one of the federally funded co-ops are experiencing accelerating net losses. President Obama’s signature health care reform program established the co-ops to provide non-profit competition to private sector health insurance providers.

Many of the 22 co-ops could soon follow an Obamacare co-op that defaulted earlier this year, suffering $163 million in operating losses in a single year. That collapse left 120,000 customers without coverage on Christmas Eve.

“We’re certainly going to have fewer co-op’s by the end of the year,” Thomas Miller, a resident health care fellow at the American Enterprise Institute think tank, told DCNF.

New figures compiled by Miller and Marie-Grace Turner, president of the Galen Institute, show that net losses for the co-ops reached a record $614 million in 2014. Both AEI and Galen are Obamacare critics.

The figure is nearly three times the $234 million in losses suffered through the first three quarters of 2014 as reported by Standards & Poor’s in a February 2015  report. It means that the burn rate for the experimental Obamacare co-ops is quickening.

“All but one of the co-ops,” S&P noted, “reported negative net income through the first three quarters of 2014.”

Insurance ratings firm A.M. Best also warned in January that as of September 30, 2014, “the ratio of surplus notes outstanding to capital and surplus exceeded 100% for all of the co-ops.”

Arizona’s Meritus Mutual Health Partners co-op has long-term loans that are nearly 1,000 percent of the value of its capital and surplus, according to A.M. Best.

S&P identified the co-ops suffering the worst capital ratios as those in Illinois, Arizona, Colorado, Nevada and Maryland.

The Community Health Alliance co-op in Tennessee reported that it’s net losses were 314% of its federal funding, according to the S&P report.

Community Health said in January that it would no longer offer insurance on the state exchange, according to the Tennessean daily newspaper. The co-op enrolled 140 customers and received $73 million from Obamacare, a cost of more $521,ooo per enrollee.

Another indication of serious co-op financial weakness is the fact that CMS gave out $317 million in additional “solvency loans” to one out of every three co-ops last year.

The injection of the federal funds was to prevent co-op capital reserves from falling below the minimum capital rates set by each state insurance commissioner.

The emerging picture of massive losses across all of the federal co-ops was forecast by an original White House Office and Management and Budget estimate that warned up to four of every 10 co-ops could default.

The human wreckage left behind a failing co-op was seen earlier this year when regulators in Iowa and Nebraska liquidated the assets of a failing federal health care co-op known as Co-Opportunity Health.  Insurance regulators officially declared the co-op was in “hazardous condition” last December.

Co-op supporters hailed Co-Opportunity health because it had initially enrolled 50,000 customers, the second highest in the nation.

“We are very pleased with the market response to our products,” said David Lyons, Co-Opportunity’s chief executive officer and a politically-connected former Iowa insurance commissioner.

What Lyons failed to say was that Co-Opportunity slashed prices and offered very low, below-market premiums to attract new customers.

The low premiums came at a cost. Co-Opportunity’s ratio of costs to premiums was 140 percent. That meant that for every dollar it collected in premiums, it had to pay out $1.40 in medical claims.

The ratio is not much better among the other remaining co-ops.  According to Scott E. Harrington of the University of Pennsylvania’s Leonard David Institute of Health Economics, “The ratios for the first three quarters of 2014 produced “a total ratio of costs-to-premiums of 116 percent.

“Most co-ops’ weak operating performance is a result of high medical claims,” concluded S&P, adding, that the medical costs were “hopelessly high” for many of the co-ops.

Brian Gillette, the chief operating officer of the Urbandale, Iowa-based Group Benefits Limited, said that the unexpected closure of Co-Opportunity Health was “massively disruptive” to 800 of his employer groups and for thousands of individual policyholders.

“We were notified on Christmas eve that the insurance division was taking over Co-Opportunity Health,” Gillette told the DCNF in an interview. “I’ve never seen anything like this,” he said. “This was without precedent in my career.”

Hints of the financial Co-Opportunity debacle came last September when the co-op abruptly announced it was dumping more than 10,000 of its poorest and sickest customers and transferring them to the state’s Medicaid program.

That harsh action appeared contrary to the originally stated mission of the consumer-oriented co-op as presented by Obama administration officials.

At its formation, federal officials at the Centers for Medicare and Medicaid Services promised the co-ops would offer “affordable, consumer-friendly and high quality health insurance options.”

Sally Pipes, another Obamacare critic who is president of the Pacific Research Institute think tank, called the dumping of enrollees “totally, absolutely immoral.”

“If I were dumped on Medicaid, I’d be furious,” she said.