Another Obamacare co-op, Connecticut’s HealthyCT, is closing its doors, and at least two most could follow suit as the nonprofit insurers decide whether they will be able to remain on firm financial footing.
The nine remaining co-ops of the original 23 co-ops must make payments totaling at least $130 million through Obamacare’s risk adjustment program, which could damage their viability.
The Connecticut Insurance Department announced Tuesday that HealthyCT was placed under state supervision, leaving approximately 40,000 Connecticut residents to find new health insurance during the next open enrollment period.
HealthyCT is the 14th co-op created under Obamacare to fail since the health care law’s exchanges opened in 2013.
The co-ops, or consumer operated and oriented plans, were created to inject competition and choice in areas where little existed. The Centers for Medicare and Medicaid Services awarded the 23 co-ops $2.4 billion in startup and solvency loans to help the new nonprofit insurance companies get off the ground.
However, more than half of the co-ops have failed to succeed in the health insurance market, despite the $1.5 billion in loans the 14 collapsed co-ops collectively received.
HealthyCT alone received nearly $128 million in loans, which included an infusion of $48.4 million in solvency loans awarded in September 2014.
Katharine Wade, state insurance commissioner, said HealthyCT’s “hazardous financial condition” led her to close the co-op’s doors. The nonprofit insurer’s financial issues were compounded after the Centers for Medicare and Medicaid Services announced last week the payments insurers must make under Obamacare’s risk adjustment program.
The Department of Health and Human Services asked HealthyCT to pay $13.4 million into the risk adjustment program, which redistributes money from insurers with healthy customers to insurers with sicker, more costly consumers.
“Unfortunately HealthyCT’s financial health is unstable, having been seriously jeopardized by a federal requirement issued June 30, 2016, that it pay $13.4 million to the U.S. Department of Health and Human Services, Centers for Medicare & Medicaid Services as part of the Affordable Care Act’s risk adjustment program,” Wade said in a statement Tuesday. “As a result, it became evident that this risk adjustment mandate would put the company under significant financial strain.”
The payments into the risk adjustment program ultimately sealed HealthyCT’s fate, and could do the same for some of the nine remaining co-ops.
Health Republic Insurance of New Jersey has to pay the most, $46.3 million, through the risk adjustment program, which is one of three programs designed to mitigate risks for insurers.
Only one of the remaining nine co-ops, Maine Community Health Options, is receiving money from the program. The co-op will get just over $700,000 from the Department of Health and Human Services.
“Contrary to everything CMS keeps saying, it looks like the risk adjustment program is not working and is harming smaller insurers, including the co-ops, and not just the co-ops,” Ed Haislmaier, Heritage Foundation senior fellow in health policy studies, told The Daily Signal. “So in some cases, the need to make risk adjustments payments may push them over the edge.”
Already, two of the remaining nine co-ops have taken steps to halt the collection of payments they owe to the federal government for the risk adjustment program.
Last month, Maryland’s Evergreen Health Cooperative filed a lawsuit in U.S. District Court against the Department of Health and Human Services and Centers for Medicare and Medicaid Services over the risk adjustment program.
The lawsuit argues that the formula the federal government uses for calculating risk adjustment payments gives larger insurance companies with deeper pockets an advantage over smaller insurance companies like the co-ops.
In their lawsuit, Evergreen Health asks the court to prohibit the federal government from collecting risk adjustment payments “calculated under the CMS’s arbitrary, capricious, and unlawful implementation” of the program.
According to court filings, Evergreen Health expected to pay roughly $22 million to the federal government. The Centers for Medicare and Medicaid Services requested $24 million from the co-op in risk adjustment payments—approximately 30 percent of what the nonprofit insurer made in revenue from premiums.
If Maryland’s co-op is required to make its $24 million payment to the government, Evergreen officials warned in court documents that its financial future may be in jeopardy.
Like Evergreen Health, Illinois’ co-op, Land of Lincoln Health, could find itself in trouble if the co-op makes its risk adjustment payment.
The co-op must make a $31.8 million payment to insurers with most costly customers through the risk adjustment program. However, Illinois Department of Insurance Acting Director Anne Melissa Dowling sent a letter to the Centers for Medicare and Medicaid Services last week saying her agency ordered Land of Lincoln Health to withhold making its risk adjustment payment.
Dowling said she was doing so to “preserve the solvency” of the co-op and prevent it from having to close its doors mid-year.
Top officials with both Evergreen Health and Land of Lincoln said the formula used by the federal government to calculate risk adjustment payment is flawed and required their respective co-ops to pay insurers that didn’t need the money.
Haislmaier said state regulators are providing the co-ops with a “short-term stop gap” to help them maintain their financial footing. However, it’s unknown at this point what will happen if they decide not to make their payments through the risk adjustment program and how the federal government will respond.
“Essentially, if you’re supervising a company that’s in financial trouble, whether it’s bankruptcy court for a non-insurance company or an insurance regulator for insolvency, the first thing you want to do is don’t pay stuff you don’t have to pay, or don’t pay now what you can pay later,” he said. “From the insurance regulator’s perspective, it makes sense. What, if anything, the feds do about it and when is another question.”
