Obamacare health insurance co-ops surged past the $1 billion mark in losses this week, making history of sorts.
The insolvencies, totaling $1.36 billion, mean that the co-ops have burned through more than half of the original $2 billion appropriated in 2010 for the program under the Affordable Care Act. The funds were loaned to the start-up co-ops in 2012 and were to be repaid in 15 years, according to the Centers for Medicare and Medicaid Services, which manages Obamacare.
Instead, 13 of the 23 federally-financed Obamacare co-ops have officially failed in only two years. Most are in the process of default as insurance regulators attempt to pay customer’s medical bills, cover medical providers and pay other creditors.
Thomas Miller, resident scholar in health care at the American Enterprise Institute, has calculated that the co-op failures will be a “total loss” for taxpayers.
“The way I’m reading the priority rules for who is paid in the event of these insolvencies and the way the co-op agreements were laid out, it looks like a total loss for the loans,” he told The Daily Caller News Foundation in an interview. “The taxpayers lose all the money.”
Almost weekly announcements of new co-op failures have come as the Nov. 1 deadline approached for the new Obamacare open enrollment season. The co-ops’ demise forces at least 740,000 largely low-income individuals and families to scramble from coast-to-coast to find new health insurance by December.
Many of the co-ops blame their financial crisis on the enrollment of a sicker population than expected. Many also found they face financial peril because their premium income did not cover the cost of claims.
In the face of the closures, co-op customers are frantically scrambling to find some sort of affordable health insurance.
“There are 740,000 people who were hoping to be getting coverage under these co-ops which were sold as making healthcare more affordable that now have to make hasty decisions about trying to find individual coverage that they can afford,” Pacific Research Institute President Sally Pipes told TheDCNF.
The pain for co-op policyholders is particularly acute in New York, where Health Republic of New York, the largest Obamacare co-op, went belly up Sept. 25. State insurance regulators initially told enrollees they had until Dec. 31 to obtain new coverage.
Then officials said the New York co-op, founded by Sara Horowitz, a well-connected liberal political activist, misled state regulators about the organization’s actual financial condition, As a result, state officials told enrollees last week that they only have until Nov. 15.
Fear is gripping the New York market for both patients and doctors.
“As the doctors realize they may not get paid, they are struggling to pay claims, and they fear they aren’t going to be paid” by the co-op, Craig Hasday, president of Frenkel Benefits, told TheDCNF in an interview. New York-based Frenkel is the largest insurance brokerage firm in the United States.
“I’ve always had concerns about this company,” Hasday said of Health Republic, and now “there is a fear the doctors will push back in a big way and say ‘I’m not going to see these patients.'”
Vermont’s Susan L. Donegan also had reservations about the co-op program from the outset.
“I feel a great deal of sympathy for the policyholders who are going through this,” Donegan told TheDCNF. Donegan was Vermont’s insurance commissioner when she refused to license the first Obamacare co-op in May, 2013, because “the model was not sustainable.”
She is now the state’s financial regulatory commissioner.
President Obama backed creation of the co-ops in place of a government-run single-payer proposal that was deemed too expensive by some congressional Democrats. The co-op program was originally slated to receive $6 billion to establish operations in all 50 states as a means of providing publicly funded competition to private for-profit insurers.
Congress reduced the appropriation to $2 billion, which Democrats now say isn’t enough. Federal officials gave no indication last year that the co-ops were in distress, and even expanded the program from 24 to 28 states.
Insurance ratings firm A.M. Best warned in January, 2015, however, that as of Sept. 30, 2014, “the ratio of surplus notes outstanding to capital and surplus exceeded 100% for all of the co-ops.”
Another co-op study done by the Galen Institute and the American Enterprise Institute reported that the co-ops had burned through a record $614 million in 2014. Industry data showed that 22 of the 23 co-ops were losing money.
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