When it passed Congress in 2010, the Affordable Care Act offered substantial financial support to create nonprofit health-insurance plans. Today 11 of the 23 such regional Consumer Operated and Oriented Plans have failed—seven since the beginning of October.
They’ve collapsed despite federal startup loans totaling more than $1.1 billion. These loans will likely never be fully repaid, while insurers and consumers will be on the hook for any unpaid claims left behind by failed insurers.
Consider CoOportunity Health, which operated in Iowa and Nebraska and received a federal startup loan of $146 million. The Iowa and Nebraska Life and Health Insurance Guaranty Associations, funded by insurers in the states, have begun paying more than $80 million to cover outstanding claims to providers which CoOportunity Health was unable to pay in its insolvency.
In the summer of 2013, a self-employed woman in western Nebraska showed me her cancellation letter for a health plan she liked—a plan President Obama had promised that she, like the rest of Americans, could keep. As she shopped for a new plan, CoOportunity Health offered premiums substantially lower than the competing plans, and she signed up.
In November 2014 CoOportunity Health announced that her platinum plan would no longer be offered. She chose another plan—and not long thereafter received a third cancellation letter, notifying her the co-op was going out of business and instructing her to find a new insurance provider before the end of the open enrollment period on Feb. 15, 2015.
As a result of CoOportunity Health’s liquidation, nearly 120,000 Nebraskans and Iowans lost coverage. And that’s just one plan.
Other collapsed co-ops and their loan amounts include: $65.8 million to Louisiana Health Cooperative, $65.9 million to Nevada Health CO-OP, $265 million to Health Republic Insurance of New York, $146 million to the Kentucky Health Cooperative, $73.3 million to Tennessee’s Community Health Alliance, $72.3 million to Colorado HealthOp, $60.6 million to Health Republic Insurance of Oregon, $87.6 million to Consumers’ Choice Health Insurance Company in South Carolina, $89.7 million to Arches Health Plan in Utah, and $93.3 million to Arizona’s Meritus Health Partners.
To date, more than half a million Americans have lost coverage thanks to the failure of these co-ops. The reason? The co-ops took on far too many customers at artificially low premiums, and, as the American Enterprise Institute and the Galen Institute noted earlier this year, are drawing down “unspent loan funds to pay medical claims.”
Despite mounting failures, the Obama administration has been unwilling to change course. Politico Pro has reported that state and federal regulators let some of the co-ops “reclassify certain loans as surplus, a move that financial analysts say will make the health plans’ balance sheets look better and potentially keep them from shutting down.” In other words, to hide their debts and project false solvency—until they, too, go under.
Amid warning signs of insolvency, Tennessee’s Community Health Alliance asked for permission from the Department of Health and Human Services to suspend enrollment in January 2015. After initial stonewalling, HHS granted permission for the freeze. (CoOportunity Health had previously asked for the same permission from HHS without success.)
At a Ways and Means subcommittee hearing in June, Julie McPeak, the commissioner of the Tennessee Department of Commerce and Insurance, said HHS “certainly had a differing opinion about the financial stability of the company.” On Oct. 14 the Community Health Alliance announced that it will not offer coverage for 2016.
With $2.4 billion in loans on the line for the 23 original plans, the co-op program leaves many questions unanswered. Ways and Means Committee colleagues recently joined me in sending a letter to the Centers for Medicare and Medicaid Services (CMS) seeking more information on the financial solvency of the remaining plans.
On Tuesday the committee is holding a hearing with Dr. Mandy Cohen, CMS chief of staff. These inquiries follow my multiple requests to HHS and CMS seeking substantive answers on why there was not more oversight of these co-ops, and what these agencies are doing to prevent further damage. I continue to await this information.
Meanwhile, I have introduced H.R. 954 to exempt consumers who purchased coverage under a terminated qualified health plan funded through the co-op program from having to pay individual-mandate penalties through the end of the calendar year or, for plans that fold in the final quarter of the year, through the end of the next calendar year. Americans should not be penalized under a law when the law’s own failed program prevented compliance.
Mr. Smith is a Republican congressman from Nebraska and a member of the Ways and Means health subcommittee.
Click here to read Rep. Smith’s op-ed online at The Wall Street Journal.