Obamacare co-op plans cut in half by failures $1.2 billion in federally backed loans is wasted
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 forprofit 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.