Yet Another and then Another Health Insurance CO-OP Bites the Dust

Last Summer I wrote, “Consumer Operated and Oriented Plans… are slipping into insolvency.” Last week I wrote, “Obamacare health insurance cooperatives are falling by the wayside like drunken ice skaters on a frozen pond.” The pace of failure is accelerating!

The latest two failures are the CO-OPs in Utah and South Carolina. In the past week, Consumers’ Choice Health Insurance Company in South Carolina and Utah’s Arches Health Plan are the latest CO-OPs to announce they will close. CO-OPs in New York, Nevada, Tennessee, Louisiana, Colorado, Iowa, Oregon and Kentucky have either closed or announced they were not continuing into 2016.

All but one lost money in 2014. This past summer a Louisiana-based CO-OPs went under after paying millions of dollars in consulting fees to companies control by CO-OP executives. Worse yet, many COOPs appear to be setting artificially low premiums to gain market share, in a game of chicken with other insurers. It’s hard to say how much of this is due to inexperience or negligence. But in many instances, it was strategy of undercutting rivals expecting taxpayers to cover their losses. Most assumed government solvency loans or risk corridor funds would bail out some of the losses.  Those that pursued that strategy were in for a rude awakening. Iowa-based CoOportunity discovered nearly a year ago that taxpayers’ generosity was not without limits. In the fall of 2014, half a dozen state CO-OPs (including CoOportunity Health) received $355 million in emergency solvency funding. But by yearend, the bailout funds were gone. In the summer and Fall of 2015, it became apparently that the temporary risk-sharing program, known as risk corridors, was also low on money and would only pay about 12 percent of what health plans hoped for. Risk Corridors are divvied up from the fees collected from insurers to compensate firms that suffer heavy losses. Every single CO-OP that has closed has blamed its demise on the lack of risk corridor funds to bail them out. Some are actually suing the government in an attempt to force taxpayers to subsidize the program.

When the CO-OP program was initially developed, it was slated to cost about $6 billion in public support. Congress wisely trimmed that back to $2 billion. To date, about $2.4 billion has actually been spent. Early projections were that 40 percent of the funds would be lost and never repaid. All told, 10 of 23 CO-OPs will not be in business in 2016. That is more than 40 percent; and in terms of market size, it’s well more than half. It’s only a matter of time until the remainder fold. It is apparently now that Congress made a wise decision when it cut back the program and limit taxpayers’ losses.

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