More than half of Obamacare’s nonprofit co-op plans have failed, with Michigan becoming the latest to announce it will not offer plans for next year, prompting Republicans to label the program a disastrous waste of taxpayer money.
Consumers Mutual Insurance of Michigan’s announcement means 12 out of 23 co-ops have dropped out of the marketplace, costing taxpayers about $1.2 billion in government-backed loans, according to Republican analyses of initial loan amounts.
It’s the latest dent in President Obama’s signature health care law, which is struggling to meet projections as it begins its third year of full operations. The government now estimates that just 10 million Americans will sign up for plans on the health care exchanges for next year, far short of the 21 million that budget analysts initially projected.
Meanwhile, the co-ops, which were intended to be alternatives to the policies offered by for-profit insurers, have been failing at a startling rate in recent weeks. They have concluded that they cannot meet their own expectations for offering low premiums while covering customers’ needs.
“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. What could go wrong? Turns out, quite a lot,” said Rep. Kevin Brady, Texas Republican and chairman of the Ways and Means subcommittee on health, which held a hearing to inquire about the failures.
Analysts say the co-ops struggled to ride out turbulence in the emerging marketplace. In some cases, claims outweighed what the co-ops took in through premiums, causing the plans to fail and forcing hundreds of thousands to seek alternatives on the Obamacare marketplace for next year.
Mandy Cohen, chief operating officer at the Centers for Medicare and Medicaid Services, told lawmakers that some co-ops were succeeding, though the administration had hoped for “a better batting average here.”
She said multiple factors led to the co-ops’ demise. For one thing, they started from scratch with no history of claims to set their prices, leading them to dramatically miscalculate their income versus costs. They also had to build provider networks and compete with well-established players in the market.
Ms. Cohen also suggested that Congress expedite the program’s unraveling by granting the co-ops only $2.4 billion in government subsidies rather than the $6 billion called for under the 2010 Affordable Care Act.
“In the face of multiple pressures, it’s not surprising that some new entrants have struggled to succeed,” she said.
State regulators have shut down co-ops at an astonishing clip in recent weeks, saying they needed to act quickly so consumers could shift to other plans by Dec. 15 and be covered in time for the new year.
The rapid closures revived an issue that emerged in July, when the Health and Human Services Department’s inspector general said the co-ops 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 could default.
More than half of the 23 co-ops lost more than $15 million, according to the inspector’s report, and Maine’s version was the only one to make money, reaping $5.86 million after it captured 80 percent of the state’s Obamacare consumers.
All told, 21 of the co-ops were steeped in red ink by the end of last year, and 13 of them enrolled far fewer people than projected.
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 has lost $35.2 million and is being forced to close a month early, Nov. 30, after regulators found its fiscal situation to be “substantially worse than the company previously reported” in its filings.
All told, state regulators have taken co-ops in New York, Michigan, Arizona, Kentucky, Louisiana, Nevada, Tennessee, Colorado, Oregon, South Carolina, and Utah out of the Obamacare marketplace for next year. A co-op serving Nebraska and Iowa was liquidated earlier this year.
Ms. Cohen will be back on Capitol Hill on Thursday to again testify about the co-ops to another House panel. She will be accompanied by an auditor from HHS, state regulators and co-op representatives.
Democrats at Tuesday’s hearing said Republicans should throw the co-op program a lifeline by dedicating more money to risk-adjustment programs that are intended to bail out insurers that lose money by issuing policies on the Obamacare marketplaces.
“It is a direct consequence of Republican sabotage,” Rep. Jim McDermott, Washington Democrat, said of the program’s struggles.
Rep. Ron Kind, Wisconsin Democrat, said co-ops needed space to work, drawing comparisons to the fan-owned Green Bay Packers, who have performed well overall this season but still suffered a devastating loss in a football game Sunday night.
Republicans said the programs were misguided from the start and that the co-ops were inexperienced and had a lousy grasp of the open market.
“We’ve got people who don’t know how to run insurance companies running insurance companies,” said Rep. Tom Price, Georgia Republican.
Open enrollment for the third go-around of Obamacare’s exchanges began Sunday, and the administration is counting on winning over millions of customers who didn’t sign up the first two years but who could be pressured by the increasing pain of the “individual mandate” tax assessed on those who forgo health insurance.
The federal government’s modest 10 million target is only slightly higher than the 9.1 million enrollees the administration projected for this year — a goal it should meet.
The individual mandate was included in the Affordable Care Act of 2010 to make sure enough healthy Americans signed up, spreading out the costs for higher-risk customers.
Sticker shock is also a concern for some customers. A pre-enrollment analysis said premiums on important midtier, or “benchmark,” plans will rise by an average of 7.5 percent.
Even as it struggles, the health care law is on track on other measures, including a Congressional Budget Office estimate that 17 million fewer people lack insurance this year because of Obamacare.