Obama Administration Cuts Its Losses with Crumbling Health Care Co-ops
Policy + Politics

Obama Administration Cuts Its Losses with Crumbling Health Care Co-ops


The Obama administration signaled Tuesday that it had nothing up its sleeve to salvage a crumbling network of non-profit insurance coops created under the Affordable Care Act, also known as Obamacare, to give more choice and less costly policies to consumers. The administration is hoping to keep the remaining dozen out of 23 operational for at least another year.  

During a House Ways and Means subcommittee hearing that was one part status report and one part post-mortem, Mandy Cohen, the chief operating officer of the Centers for Medicare and Medicaid Services, which operates Obamacare, said the administration was essentially cutting its losses while keeping close watch on the surviving health insurance co-ops.

Related: Nearly Half of Obamacare Co-Ops Are Closing

“For co-ops that will not sell coverage on the marketplaces in 2016, CMS is working collaboratively with [state insurance offices] and the co-ops to wind down their operations in an orderly way, while minimizing disruptions to consumers,” Cohen told Republican and Democratic lawmakers.

As for the hundreds of thousands of Americans who face the loss of their health care coverage with the demise of many co-ops across the country, Cohen’s only consolation was that they are free to seek replacement policies through regular Obamacare insurance markets, which have begun accepting enrollments for 2016.

With 11 of the original 23 non-profit insurance plans created under the Affordable Care Act in 2011 now either defunct or nearly out of business, the co-op experiment is bordering on an unmitigated disaster. While Cohen and her Democratic allies on the committee blamed the Republican controlled Congress for systematically strangling the initiative by slashing the original $6 billion authorization to just $2.4 billion, Republicans blamed the failure on poor business models and management and the hubris of CMS officials who thought they could foster insurance competition from Washington.

Related: GOP Faults Obama and the ACA for Failure of Healthcare Co-ops

Rep. Kevin Brady (R-TX), chair of the health subcommittee and a leading candidate to succeed newly elected House Speaker Paul D. Ryan as chair, greeted Cohen with a scathing critique of the star-crossed co-op program.

“Supporters of this program argued it would increase competition in the individual and small group health insurance markets,” he said. “That very premise should have been cause for alarm. Only in Washington would a group of bureaucrats think they knew how to micromanage competition instead of letting consumers and markets do what they do best.”

Brady charged that CMS “essentially allowed anyone to participate in the program, regardless of whether he or she had any prior experience running an insurance company.” As for financing, he added, the administration dipped heavily into government revenues to provide two types of loans –start up loans and loans to assure continued solvency, “both with incredibly favorable loans terms.”

“What’s most surprising about this situation is the Administration knew this was coming,” he added. “Their own credit estimates project massive losses for the program. And no matter the capital start-up funding or the backstops, a model that is wrong is not going to succeed.”

Related: Obamacare Falls Short on Sign-Ups While Co-Op System Crumbles

Rep. Jim McDermott of Washington State, the ranking Democrat on the subcommittee, offered a much different take, charging that after Republicans failed to block passage of Obamacare, they “have systematically and deliberately sabotaged the implementation of the Affordable Care Act.”

“The early challenges facing the co-ops are just the most recent consequence of this destructive Republican agenda,” he said. “In 2013, the Republican Congress slashed funding for loans and grants to co-ops by nearly two-thirds. These cuts have devastated co-ops across the country and prevented CMS from approving dozens of new applications.”

The latest non-profit plan to call it quits is a health insurance co-op that covers about one in three Arizonans, according to the Arizona Republic. The Arizona Department of Insurance announced last Friday that Meritus Health Partners/Meritus Mutual Health Partners had been placed into "supervision" and will only continue to serve clients until the end of the year. Earlier this year, ten other co-ops announced they had run into serious financial problems and were going out of business. Those include plans in Colorado, Iowa, Kentucky, Utah, Louisiana, New York – the largest in the nation with 150,000 enrollees -- Nevada, Tennessee, Oregon and South Carolina.

Related: Obamacare Gap Traps Millions With Coverage Who Can’t Afford Care.

The most recent closings came soon after the Obama administration’s decision on Oct. 1 to provide just 12.6 percent of the $2.87 billion that insurers were seeking to offset losses caused by unexpectedly high coverage costs.

The crisis was strongly hinted at earlier this year when CMS issued warning letters to 11 of the co-ops that placed them under special scrutiny and required that they prepare a plan of corrective action. Some of those co-ops almost immediately announced they were closing their doors.  Cohen stressed during her testimony that “CMS takes its oversight of taxpayer funds seriously” and has closely monitored and evaluated all co-ops to assess their performance and compliance.

A report last July by the Inspector General of the Department of Health and Human Services stated that a shocking 21 of the 23 co-ops reviewed had incurred net losses between Jan. 1 and Dec. 31 in 2014. On top of that, 19 of the 23 showed net financial losses because the claims they received exceeded premium revenue.

“I’m not interested in blame,” Brady told Cohen yesterday. “I’m interested in understanding how many [other] of these programs are headed to failure, discussing where we go from here and figuring out how we’re going to bring some stability to those families that are affected.”

For now, however, many leaders of the Republican-controlled House and Senate have voiced indifference to the plight of the program, suggesting that the best thing that could happen is if the entire co-op system collapses, while the Obama administration lacks the resources or the will to intervene in a substantive way. It would be surprising if more co-ops go under in the coming weeks, during the new Obamacare enrollment season. But there’s no telling how many more might pull the plug on their operations if they run into more financial trouble during the coming year.