Kentucky Health Cooperative, an insurance co-op created by Obamacare, is closing its doors after massive losses. This is the fifth co-op to go under this year, following the failure of insurers in Iowa, Louisiana, Nevada, and the largest co-op in the nation, New York.
The “risk corridor” program, what was supposed to reimburse insurance companies for part of their losses, simply isn’t paying out enough money to offset the massive amount in claims being paid off. This is because less money is coming into the program than was expected.
The cooperative, created under Obamacare to offer insurance to enrollees, said that losses started to mount and couldn’t be overcome. A big problem is that the co-op had trouble paying out claims.
“Kentucky Health Cooperative has paid millions of dollars in claims on behalf of our members,” Jennings said.
The problem is that the cooperative was popular and many of the new members hadn’t received health insurance. That led to a pent-up demand for health services, which created millions in claims, the co-op said.
In 2014, the co-op’s losses were about $50 million but slowed to $4 million in the first half of 2015, the company said.
“We were on track to reverse direction and begin operating in the black, and we expected this to come about in 2016,” interim CEO Glenn Jennings said.
But last week the co-op and other insurers found they would receive less money from the federal government this year to help pay for the sickest customers.
The federal government doled out $362 million to insurers to help cover the costs of older, sicker Americans. The reason is the risk corridor payment program didn’t bring in as much money as expected.
The payments are determined through a mathematical formula that compares claims and premiums. Last year, payment requests by issuers exceed their charges, the Centers for Medicare and Medicaid Services said.
The insurers had requested nearly $3 billion.
Kentucky’s co-op received $9.7 million, when it asked for $77 million.
The co-op said Friday that it would continue to meet its financial obligations. It serves about 51,000 members but will stop providing services Dec. 31.
About half of the state exchanges are facing financial difficulty of varying degrees while total Obamacare enrollment has dropped below 10 million. The entire system is being strangled by simple math: too much money is going out to pay claims and not enough in premiums is coming in. You have to wonder how many insurers would have jumped ship on the state exchanges if not for the risk corridor slush fund.
As might be expected, Republicans pounced on the news of the co-op closing:
Senate Majority Leader Mitch McConnell (R-Ky.) said the problems speak to the health law as a whole.
“Barely a week goes by that we don’t see another harmful consequence of this poorly conceived, badly executed law,” McConnell said in a statement. “Despite repeated Obama administration bailout attempts, this is the latest in a string of broken promises with real consequences for the people of Kentucky who may now be losing the health insurance they had and liked twice within the past three years because of Obamacare’s failures.”
Twenty-one of twenty-three state co-ops are losing money.