The financial crisis sweeping through a network of 23 non-profit insurance plans created under the Affordable Care Act, also known as Obamacare, is jeopardizing the coverage of hundreds of thousands of Americans and putting at risk billions of dollars in federal loans.
But as HHS officials struggle to find their way out of the latest morass in President Obama’s signature health care plan, Republican leaders are doing little to help. After years of failed efforts to derail Obamacare in the courts and on Capitol Hill, Republicans say the president is getting his comeuppance for ignoring their past warnings about the program.
“It’s just one more example of a deeply flawed federal law,” Sen. Lamar Alexander (R-TN), chair of the Health, Education, Labor and Pensions Committee, said in an interview on Tuesday. “And what we should be doing is thinking of ways of replacing it with a law that offers more choices and lower costs to consumers, and that’s what we’re doing.”
So far, eight of the 23 health insurance cooperatives originally formed as an alternative to private insurers operating on the government’s exchange have announced they will close their doors by the end of the year. Those eight are in Colorado, Iowa, Kentucky, Louisiana, New York, Nevada, Tennessee and Oregon. There are strong indications that other co-ops will close as well as the Obamacare signup period begins shortly.
All the co-ops received 15-year loans of different amounts to provide subsidized health insurance to poor and low-income Americans and to encourage competition with private, for-profit insurance companies. At least a half million Americans will lose their coverage by the end of the year and will have to find replacement policies – probably with higher premiums and deductibles.
Moreover, more than $900 million of the original $2 billion in federal loans to the co-ops to help them get off the ground has been lost, according to media reports.
Sen. John Cornyn (R-TX), the Majority Whip, said that the “wasted $900 million” is part of an “all-too-common feature” of a health care system that “just isn’t working the way it was advertised.” And Sen. John Barrasso (R-WY), another member of the GOP leadership, insisted that only one of the remaining co-ops – in Maine – looks financially healthy enough to survive another year of operation. “It shows that the president didn’t understand the economics of his own health care law or how healthcare works in America,” Barrasso said in an interview.
Alarmed by these serious shortcomings, the Centers for Medicare and Medicaid Services (CMS), which oversees Obamacare, issued warning letters earlier this year to 11 of the co-ops, placing them under special scrutiny and requiring that they produce a plan of “corrective action.”
Some of the co-ops responded by announcing they were going out of business beginning in February when a program that served residents of Iowa and Nebraska announced it was shuttering its doors. Late last month, the nation’s biggest co-op in New York -- one with more than 150,000 members -- announced it was shutting down, shocking many insurance and health policy analysts.
Last Friday, the co-ops in Colorado and Oregon announced they too were closing at the end of the year, providing added worry for the administration. CMS declined to respond to a request for an interview or comment yesterday.
A little history: The non-profit, consumer operated health plans were added to the law in 2009 as an alternative to a government-controlled “public plan option” that many liberal Democrats had favored but that didn’t pass muster with Republicans and some Democrats. The co-ops were designed to expand the coverage options beyond high-powered private insurers and provide more affordable alternatives and discounts.
Part of the blame for failure rests squarely with the co-op officials who pursued dubious business models and marketing tactics that attracted few enrollees and sometimes led to even higher premiums than those being offered elsewhere. But it’s also true that the co-ops were set up for failure by a series of operating restrictions that were written into the law at the behest of traditional insurers.
For example, the law bars co-ops from using any federal loan funds for marketing expenses. And it mandates that a majority of their enrollment come from individuals and small businesses, rather than from more profitable large-employer market, according to a recent analysis by the Commonwealth Fund.
Obamacare also requires that the first loans be repaid within five years, a timeframe that was inadequate for the co-ops to build up their markets, according to the analysis. And federal policy makers subsequently cut the co-op loan budget by two-thirds, “leaving funding at levels far below what experts told officials would be needed to ensure that the plans were adequately capitalized,” the report stated.
Officials of the financially strapped co-ops have also complained about receiving low payments from an ACA program called “risk corridors,” which was designed to protect participating insurers against heavy losses in case of excessive claims by older and sicker patients requiring costly medical treatment. Companies that were hard hit with claims theoretically could draw down money from a fund while other insurers who did far better than projected would pay into the fund.
In June 2014, the Obama administration floated an idea for shifting funds from other areas of the budget to beef up funding for “risk corridors” to meet the growing demands of insurers who were losing money. However, House and Senate Republicans balked at the idea, denouncing it as a “bailout” for insurance companies and a contravention of Congress’s spending authority.
Sen. Jeff Sessions (R-AL) and Rep. Fred Upton (R-MI), chair of the House Energy and Commerce Committee, warned newly confirmed Health and Human Services Secretary Sylvia Mathews Burwell in a letter that implementing the new rule “would constitute an unlawful transfer of potentially billions of taxpayer dollars to insurers.”
The Obama administration announced on October 1 of this year that the ACA had collected only enough revenues to provide 12.6 percent of the $2.87 billion that the insurers were seeking.
Kelly Crowe, CEO of the National Alliance of State Health CO-OPs, said in a statement last week, “It is no coincidence” that the announced closings of co-ops “come on the heels” of the recent notice that only 12.6 percent of the 2014 risk corridor funding will be paid to insurers.
“Many of the co-ops now closing were well on their way to longer term financial sustainability, but few businesses can sustain hits like the co-ops and other small and new insurance companies have endured from unexpected risk adjustment obligations and much lower-than-promised risk corridor payments,” she said.
“Though federal regulators have taken some modest steps to ease co-ops short-term financial burdens, a firmer commitment to fulfill the obligations of the ACA’s risk programs is needed to provide stability to the marketplaces,” she added.
But the Republicans are unmoved by the co-ops’ pleas for more “bailouts.”
“All we said was that the program should be budget neutral,” Sen. Barrasso said in an interview.
“There should not be subsidies by the government. If there are certain insurance companies that – based on who they insured and what they charged for premiums – did well, then whatever money came in can be paid out -- but no more.”