Two More Obamacare Co-Ops Shuttering their Doors

Obamacare non-profit co-op insurance organizations in Colorado and Oregon are shutting down, making it 7 out of 23 non-profits to have closed in the last year.

The Hill:

The news comes after announcements on Wednesday that Tennessee’s co-op is shutting down and last Friday that Kentucky’s co-op would shutter.
This month marks an important time for co-ops to decide whether they will continue, with the sign-up period for next year’s ObamaCare coverage beginning Nov. 1. Co-ops did not want to start offering coverage and then have to shut down in the middle of next year.

Many of the beleaguered co-ops have blamed low payouts from an ObamaCare program known as risk corridors. That program was designed to protect insurers against heavy losses by collecting money from insurers doing well and giving it to insurers faring poorly. But the Obama administration announced on Oct. 1 that the program had only taken in enough funds to pay out 12.6 percent of the $2.87 billion that insurers had requested.

“The government’s refusal to honor its risk corridor obligations represents a negative financial impact of over $20 million,” said Dawn Bonder, CEO of the Oregon co-op Health Republic Insurance. “This has placed us in a difficult financial position that could jeopardize our members and partners. As a result, we believe the most ethical step is for Health Republic to refrain from entering the market in 2016 and begin an orderly wind down of business.”

Colorado HealthOP co-op stood out from the others by protesting the decision of the state Division of Insurance to shut it down.

“We are astonished and disappointed by the Colorado Division of Insurance’s decision,” the co-op’s CEO, Julia Hutchins, said in a statement. “It is both irresponsible and premature.”

The co-op said that it is profitable and in a “strong financial position.”

The Colorado Division of Insurance attributed its decision to the low risk corridors payments collected by the Centers for Medicare & Medicaid Services (CMS).

“Our decision is a direct result of this shortfall by CMS, and I sympathize with the HealthOP, but the Division has requirements and it has to protect consumers,” Colorado Insurance Commissioner Marguerite Salazar said in a statement.

The risk-corridor program — a slush fund for insurance companies who lost money on the exchanges — was never going to pay the co-ops what was originally expected. Projections rarely match results and this has proved especially true with Obamacare programs.

But are the co-ops doomed?

There are also congressional probes. Republicans on the House Ways and Means committee asked CMS for information on its oversight of the co-ops last month. The committee set a deadline of Oct. 14 for a response, but says it has not heard back.

CMS says it plans to respond to the committee.

After each announcement of a co-op failure, the Obama administration has stressed that not every start-up succeeds. It also says it understands that the low risk corridor payments could pose a problem, and that it is working with states and insurers.

As of the end of September, the administration had placed 11 co-ops under more intense scrutiny, known as “enhanced oversight” or a “corrective action plan.”

Some have suggested those steps are mostly intended to show Congress and other watchdogs that the administration is not asleep at the switch. But CMS also has some limited steps it can explore, like allowing co-ops to use unspent start-up money for ongoing solvency, or potentially looking to find a way for extra financing from outside the government.

A major question is whether the $2.4 billion in federal loans made across all of the co-ops will be repaid.

For the failed co-ops, repayment appears doubtful. Adelberg said that when co-ops go into state receivership, the receiver prioritizes paying insurance claims over paying back the federal government. An inspector general report in July found that financial losses might “limit” the ability of some co-ops to repay loans, and that as of the end of last year, 21 of 23 were losing money.

“For the co-ops that go into receivership, the state receiver will determine how to settle the estate,” Adelberg said. “Paying back the federal loans likely will not be the highest priority.”