Health Insurance Co-Ops: Obamacare’s Next Debacle?

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Posted by Alexander Hendrie on Monday, August 3rd, 2015, 4:45 PM PERMALINK

Most of the 23 Obamacare Co-Ops have failed to meet their enrollment and profitability projections, according to a recently released report by the Department of Health and Human Services Office of the Inspector General (HHS OIG). As the report states, this near-universal poor performance calls into question the long term viability of the program and its $2.4 billion in federal loans.

Obamacare established the Consumer Operated and Oriented Plan (Co-Op) program as an alternative to existing health insurance companies. Under the program, the Centers for Medicare and Medicaid Services (CMS) would provide both startup and solvency loans to applicants that would then set up a non-profits with the hope of providing “consumer operated and oriented health insurance.”

However, as the report notes, Co-Ops have performed far below expectations, with both member enrollment and profitability far below projections. As the report states:

“member enrollment for 13 of the 23 Co-Ops that provided health insurance in 2014 was considerably lower than the Co-Ops’ initial annual projections, and 21 of the 23 Co-Ops had incurred net losses as of December 31, 2014.”

In total $3.4 billion was appropriated for the Co-Op program and CMS has already awarded loans of at least $2.4 billion. But as the report notes, more than half of the Co-Ops incurred losses are greater than $15 million. This poor performance to date brings into question their long term viability, and puts the billions in loans at risk. But despite this poor performance, CMS is yet to develop criteria to assess the long-term sustainability of a Co-Op:

“The low enrollments and net losses might limit the ability of some Co-Ops to repay startup and solvency loans and remain viable and sustainable. Although CMS recently placed four Co-Ops on enhanced oversight or corrective action plans and two Co-Ops on low-enrollment-warning notifications, CMS had not established guidance or criteria to assess whether a Co-Op was viable or sustainable.”

The poor performance of Obamacare Co-Ops should not be surprising. According to a report by the Daily Caller’s Richard Pollock, 17 Co-Ops paid their executives exorbitant salaries as high as $587,000. Not only is this compensation far greater than the median salary for health insurance executives ($135,000), most Co-Op executives had no insurance experience whatsoever.

While Co-Ops started with a vision of member driven healthcare, this future is not looking bright. Already, several Co-Ops have had to shut down and others face severe financial difficulties. Given the current shortcomings of this program, it appears likely that many more will shut down in the coming months and years. When this happens, what will happen to the $2.4 billion in taxpayer loans that were doled out to fund this struggling program?

Photo Credit: David Goehring, https://www.flickr.com/photos/carbonnyc/

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