More Obamacare co-ops could close

Kentucky's taxpayer-funded health insurance cooperative created under Obamacare failed last week, and it doesn't appear to be the last.

A confluence of factors such as limited government funding and a narrow business model are likely to shutter many more Obamacare co-ops in the next few years, experts say. The private, nonprofit co-ops were created under Obamacare to offer more competition on the marketplace insurance exchanges.

The federal government had given out $2.4 billion in loans to the 23 co-ops as of December 2014, according to recent findings.

Kentucky became the fifth state-run co-op to shut down since they were created in 2014, joining New York, Iowa, Louisiana and Nevada. That leaves the number of state-run co-ops at 18, with two of the biggest closed, and experts say the prognosis doesn't look good.

"They might be able to live on for another year, but they can't expand," said Tom Miller, resident fellow at the American Enterprise Institute think tank. "Almost all of them are looking pretty negatively without any upside."

A problem is the Obamacare marketplaces are the only place the co-ops do business.

"It is still a risky market, particularly if that is the only market that you are in," said Chris Sloan, a manager at health research firm Avalere Health.

Miller and Sloan couldn't project an exact number that will shut down or when.

Standard & Poor's credit-rating service found that only one co-op, Maine Community Health Options, made a profit in the first three-quarters of 2014.

The financial ratings service said that it isn't uncommon for start-ups to have growing pains, especially since they were all created in 2014, the first year that Obamacare went into effect.

They initially offered lower premiums than their competitors and attracted a lot of customers, according to a June report from the American Enterprise Institute.

However, the co-ops are "burning through inadequate premium revenue and dwindling amounts of unspent loan funds to pay medical claims," the report said.

Kentucky and New York had the two biggest enrollments of the 23 co-ops this past open enrollment period. Kentucky had 51,000 customers and New York's co-op had 251,000.

The Centers for Medicare and Medicaid Services, which oversees the co-op program, said there are inherent risks to entering the insurance market and that not all co-ops will succeed.

The agency said it doesn't provide day-to-day oversight of the co-ops but it does provide some oversight such as audits. "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," the agency told the Washington Examiner.

It doesn't appear that the co-ops will get much help from another government program called risk corridors. Obamacare created the program to help pay insurers in the Obamacare exchanges for their sickest customers.

The goal of the program was to compensate for the uncertainty of who bought insurance in the exchanges. If insurers set premiums too low, then they may not be able to cover all of their claims.

The program worked by insurers paying the federal government for unexpected gains and insurers would get paid for higher-than-expected losses.

In 2014, the Obama administration told Congress that the risk-corridor program would be revenue neutral and not require new funding. Congress essentially called its bluff, putting a provision in the 2014 continuing resolution to fund the government that the co-op program had to be revenue neutral.

So the program could only pay out what it got from insurers, Sloan said. That didn't happen.

"The vast majority of carriers priced too low for the risk of their enrollees," he told the Washington Examiner. "The vast majority [was] due to receive a payment and only a small fraction paid in to the program."

Insurers requested $2.9 billion for 2014 from the risk corridor program and only received $362 million.

The shortfall hit co-ops the hardest, as they are new and don't have cash reserves built up, Sloan said.

Kentucky's co-op asked for $77 million but received only nearly $10 million, a factor in the co-op's decision to shut its doors.

It doesn't appear the risk corridors can be counted on, as the program payments stop after 2016.

With no government backing on the horizon, co-ops may have to raise premiums to survive, which makes them less attractive to consumers against entrenched insurers, Miller told the Examiner Tuesday.

But the marketplaces still will have insurers even if all the remaining co-ops shut down.

"The success or failure of the co-ops will have relatively little impact on the success or failure of the exchanges," he said. "At the end of the day these were put in as another option for consumer-directed health options program. It is designed to increase competition."

http://www.washingtonexaminer.com/more-obamacare-co-ops-could-close/article/2574075