There are ominous new signs that what’s left of the star-crossed Obamacare co-op program may be headed for another financial crisis unless the eleven remaining health insurance programs can pick up the pace of enrollments.
A Government Accountability Office report released Thursday cautions that four of the 11 surviving non-profit cooperatives that were created as part of President Obama’s Affordable Care Act have recorded sub-par enrollment figures and could be in trouble, despite substantial federal start-up loans and grants.
“Of the 11 co-ops that continued to operate as of January 4, 2016, six exceeded their 2015 enrollment projections by June 30, 2015,” the GAO report states. “Our analysis, however, also found that four co-ops had not yet reached a program benchmark of enrolling at least 25,000 members.”
While there are many factors that led to the demise of nearly half of the 23 original coops by the end of last year, one of the biggest problems was inadequate enrollment. Of the 11 co-ops that have ceased operating, GAO noted, six did not meet their individual enrollment projections.
The nearly two dozen consumer-oriented co-ops were created to enhance competition in individual states with subsidized insurance policies sold directly to individuals and small businesses. However, faulty business models, unrealistic enrollment and income projections, and unexpected cuts in federal assistance led to the collapse of a dozen co-ops throughout the country, including the largest one in New York state with more than 100,000 subscribers.
A recent Senate report severely criticized the Obama administration for its handling of the co-op program, which led to the loss of $1.2 billion of federal loans and startup funds. According to the report, Health and Human Services Department officials ignored numerous warnings from an independent accounting firm dating back to 2012 that most of the insurance co-ops were poorly conceived, structured and managed, and that many would almost certainly fail in their current state.
Co-op enrollments doubled from 2014 to 2015, according to the GAO, but less than half of that was in co-ops that continued on in 2016. Moreover, enrollments for most co-ops differed significantly from their projections.
The demise of the dozen co-ops “renew[s] questions previously raised about the long-term sustainability of the co-ops and the effects that they will ultimately have on states’ health insurance markets,” the GAO report stated.
To underscore the seriousness of the problem, GAO said that its investigators had learned from some federal officials that some of the co-ops still operating are not expected to break even by 2017.
The closing of the dozen co-ops has had serious ramifications, besides the loss of $1.2 billion of the $2.4 billion that the Centers on Medicare and Medicaid Services (CMS) originally awarded to help establish the program in 2014.
The Wall Street Journal reported that many thousands of physicians, hospitals and other providers in some states have yet to be paid for health services delivered to members insured by the co-ops. More than 500,000 people who had signed up for coverage lost it and had to scramble to find replacement coverage after their co-ops had folded.
“With nearly half of the co-ops now closed, the failed experiment has wasted taxpayer dollars and forced patients and families to scramble for new insurance,” Senate Finance Committee Chair Orrin Hatch, (R., Utah) said yesterday at a hearing into the co-ops’ failed operations.
There is plenty of blame to go around in assessing the shortcomings of a program, which was originally conceived as an alternative to a government health insurance program. A possibly fatal moment came when the administration decided last October to provide just 12.6 percent of the $2.87 billion that insurers were seeking to offset losses.
The decision to severely reduce funding of the “risk corridor” program designed to reimburse insurers battered by excessive losses led to a mass exit of these co-ops from the market. Executives of some of the co-ops complained that the Republican-controlled Congress undermined their ventures by sharply cutting funding that had been originally promised.
In an analysis in Reason.com, Eric Boehm questioned whether the co-ops weren’t doomed to failure from the beginning by the way they were structured in the Affordable Care Act.
“A government program being poorly run is nothing new, of course,” wrote Boehm, a reporter with the Franklin Center for Government and Public Integrity. “But the co-ops established under the health care law were subject to a series of regulations that make you wonder how they were ever supposed to succeed in the first place.”
For example, the co-ops were barred from hiring anyone who had served at an executive level at any health insurance company in the country, he wrote. What’s more, the co-ops were barred from raising capital apart from what they received in federal loans. They were limited in how they could compete with private insurers. And, perhaps most remarkably, they were prevented from ever turning a profit.