Obamacare’s co-ops, designed to give more choices for insurance, lost hundreds of millions of dollars in their first year and didn’t attract anywhere near as many customers as they had hoped, meaning they may go insolvent and default on taxpayer-funded loans, according to a government audit released Thursday.
One co-op already went belly-up, and all but one of the 22 others lost money in 2014, the Department of Health and Human Services inspector general said. Maine’s co-op was the only one to make money, reaping $5.86 million after it won 80 percent of the state’s Obamacare consumers.
All told, the co-ops lost $376 million and fell more than 100,000 customers short of their projections as of Dec. 31.
Auditors said they couldn’t even get year-end data for the Iowa/Nebraska co-op because state insurance regulators stepped in and liquidated it in March.
The co-ops, or Consumer Operated and Oriented Plans, were a key part of congressional Democrats’ health care plans, serving as a backup after they were unable to win passage of a “public option,” or government-run plan to be offered in each state health exchange.
The nonprofit co-ops were intended to offer a consumer-oriented alternative to big business insurance companies when the Affordable Care Act began to offer subsidized coverage on web-based marketplaces in Jan. 2014.
Pundits at the time warned they would have a hard time competing for market share, and the auditors found that to be the case in many states.
“The low enrollments and net losses might limit the ability of some co-ops to repay startup and solvency loans and to remain viable and sustainable,” the inspector general said.
The Centers for Medicare and Medicaid Services (CMS) has doled out $2.4 billion in loans to the co-ops.
The lines of credit came in two forms — startup loans to get their operations going and solvency loans to help the nonprofits keep enough capital on hand to meet state licensing requirements.
Failure to attract enough customers, combined with claims that exceeded premiums, have left many of the nonprofit issuers struggling to tread water.
The report said CMS singled out four co-ops for enhanced oversight and warned two of them enrollment was dangerously low, but it hadn’t set out guidance for how to tell if a co-op is still viable or sustainable.
The inspector general said the co-ops were failing for a number of reasons: Obamacare websites crashed upon launch in fall 2013; co-ops had difficulty obtaining insurance licenses on time or dealt with shake-ups in management; and several co-ops offered high-priced plans that couldn’t compete with name-brand insurers.
Arizona, which predicted nearly 24,000 customers in its first year, ended up with just 869, or 4 percent of its projection. It lost $7.2 million.
New York’s co-op did the best in enrollment, having projected about 30,000 customers but ending up with 155,402 at year’s end. Still, it lost $35.2 million. Illinois projected it would be $28.2 million in the black come Dec. 31, but it lost $17.6 million.
Kentucky’s co-op lost the most money, ending up $50 million behind.
Those co-ops that ended up with higher enrollment than projected, including New York and Kentucky, tended to offer lower-priced plans, the IG said.
In a written response, the administration said it is launching a series of audits and site visits to make sure co-ops comply with the terms of their loans.
“The CO-OPs enter the health insurance market with a number of challenges, including building a provider network to pricing premiums that will sustain the business for the long-term,” CMS Acting Administrator Andy Slavitt said in a letter to the inspector general. “As with any new set of business ventures, it is expected that some CO-OPs will be more successful than others, but CMS will continue to actively monitor each CO-OP’s progress, and remains committed to facilitating access to affordable, high-quality health insurance for all Americans.”
A trade group, the National Alliance of State Health CO-OPs, also pleaded for patience, saying enrollment grew after the audit period and that “return on investment for CO-OPs was never expected to be immediate.”
“The Office of Inspector General report reveals little in the way of new information about CO-OPs, and unfortunately relies primarily on seven-month-old data that does not reflect the most recent open enrollment period,” alliance CEO Kelly Crowe said.
“With the courage to innovate also comes the risk of occasionally falling short of expectations,” she added. “Though still in their infancy, CO-OPs will continue to work toward their mission of providing affordable and high-quality health insurance to those who need it most.”
Among its recommendations, the inspector general said CMS should place failing co-ops on oversight plans, pinpoint how it can tell if a co-op is struggling and go after unpaid funds from terminated co-ops.
Congressional Republicans, though, said the co-ops’ misfortunes were yet another symptom of a failed health care law.
“Every aspect of Obamacare is in bad shape,” Sen. Orrin G. Hatch, Utah Republican, said.