Federal officials admitted for the first time Monday that the collapse of the largest and most costly of nearly two dozen Obamacare-funded health insurance co-ops may not be the program’s last failure.
The admission followed the collapse Friday of Health Republic of New York after regulators ordered the co-op “to cease writing new health insurance policies,” leaving 155,000 customers scrambling to find new coverage by the end of the year.
“If a co-op has solvency issues, and we cannot rule out that others may this year, we will work with the states so that consumers have affordable options on the marketplace,” said Department of Health and Hhuman Services spokesman Aaron Albright. “As a startup business, we recognize not all will succeed.” Albright is a spokesman for the department’s Centers for Medicare and Medicaid Services (CMS), which administers Obamacare.
The federal government gave Health Republic $265 million in start-up money in 2012. Taxpayers also funded an additional $91 million in emergency “solvency loans” last year, for a total of $356 million. The startup funds were to be paid back after the co-ops became financially viable.
The $356 million for Health Republic went to Sarah Horowitz, a liberal New York political activist who previously launched the Freelancers Insurance Company that state officials have ranked as providing the poorest consumer service among Empire State health insurers.
Horowitz was awarded another $170 million to start Obamacare health co-ops in New Jersey and Oregon. Health Republic is the sixth of 23 Obamacare co-ops to fail since the $2.4 billion program was launched in 2011. Co-ops in Vermont, Iowa, Nebraska, Nevada and Louisiana have also been terminated.
Critics of the program said that CMS was only recognizing the reality of the disaster unfolding for the remaining co-ops.
“CMS is begrudgingly acknowledging reality,” said Grace-Marie Turner, president of the Galen Institute, a free-market health policy think tank. “They recognize that failures are going to be popping up in the near future.”
Thomas Miller, a resident scholar and health insurance expert at the American Enterprise Institute (AEI), said it’s possible up to 10 co-ops could fail this year.
Louisiana Insurance Commissioner Jim Donelon, who presided over the collapse of the Louisiana Health CO-OP, believes all of the Obamacare co-ops were doomed from the beginning.
“I think the challenge of rolling out a new health insurer at the same time as the roll out of the Affordable Care Act was a near impossible task,” Donelon said.
“It’s playing out that way in 22 of the 23 states,” he said, noting that insurance industry ratings experts found that last year all but one of the co-ops suffered large net losses.
New York insurance regulators refused to disclose financial data about Health Republic’s problems and gave no explanation for why the co-op failed.
Data collected by the independent National Association of Insurance Commissioners (NAIC), however, show that Health Republic lost $94 million in 2014, more than a third of the $241 million the co-op had in cash on hand. The total amount of losses by all co-ops was released in a report filed by the Galen Institute and AEI’s Miller.
Louisiana co-op documents obtained by TheDCNF from the Louisiana insurance department also illustrate why most co-ops are failing.
The Louisiana co-op reported it had received $60 million in federal funds, but faced $46 million in liabilities in the last two quarters of 2014. Net losses last year were $21 million. The co-op was far behind in payments to hospitals and doctors, with more than half of its accounts due being unpaid from 90 to more than 120 days.
Turner said the next co-op to go belly up could be the Kentucky Health Cooperative, which serves customers there and in West Virginia. It is the second largest co-op behind Health Republic and claimed 57,000 customers in 2014.
“Kentucky is one that we have our eye on. It’s the second biggest enrollment after NY,” Turner said.
Because the co-op was unprepared for a large enrollment, Turner said it has had to pay higher premiums to other insurers for access to their doctors, clinics and hospitals.
“Most have to rent networks from established carriers for which they have to pay a premium. And they attracted a sicker population, so they had to pay higher costs,” she said.
CMS gave the Kentucky co-op $65 million in emergency solvency funding in November 2014. The infusion of capital was to assure the co-op met state requirements for minimum cash on hand.
NAIC reported that last year the Kentucky co-op faced net losses of $127 million, with $124 million in federal cash.
Like New York, the co-op with customers in Iowa and Nebraska had high enrollment. ut because the co-op was paying $1.40 in benefits for every $1 it got in premiums, the higher enrollment only meant bigger losses.
The quickening downward spiral of the co-ops, which represented a vision of President Barack Obama and co-op activists in 2010, now is taking a toll on their once friendly relations.
The National Alliance of State Health CO-OPs, a trade association representing the Obamacare co-ops, has blamed the problems on the Obamacare law itself and programming decisions by Obama administration officials.
Following Health Republic’s collapse, Kelly Crowe, NASHCO’s CEO, released a statement saying “from practically their inception, health insurance co-ops have been hamstrung by both the structure of the program and the way in which [Obamacare] was implemented.”
Capitalization levels “were insufficient” and the program contained numerous “regulatory obstacles,” she said.
Content created by The Daily Caller News Foundation is available without charge to any eligible news publisher that can provide a large audience. For licensing opportunities of our original content, please contact [email protected].