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Tags: obamacare | co-ops | bankrupt | forbes | CoOportunity Health | Scott Gottlieb

Forbes: Obamacare's Low-Cost Co-ops Going Bankrupt

Thursday, 19 February 2015 09:17 AM EST

The nonprofit insurance co-operatives created under Obamacare are losing millions of dollars and going bankrupt because they were doomed from the start, according to Forbes.

"The co-ops aren’t dying only because they were hastily constructed, or poorly managed," writes Forbes' public health analyst Scott Gottlieb. "Their disaster is far more willful and deliberate. They meant (to) lose money."

He added, "Last year, the co-ops made a big bet. While private plans were raising their premiums for the second year of Obamacare, the co-ops proposed sharp cuts."

But Gottlieb pointed out that in order to cut premiums, the co-ops assumed that medical costs would grow at a far lower rate than industry averages.

The co-ops believed that costs would rise less than 5 percent, when the insurance industry more accurately forecast the increase would be closer to 6 percent, which ultimately led to the crisis that the co-operatives are now facing.

Gottlieb continued, "The co-ops were also predicting that they would be able to spend far more of their premium revenue on providing medical care — in some cases upwards of 90 percent. This figure, referred to as a health plan’s medical loss ratio, was well ahead of the 80 percent average MLR across private Obamacare plans.

"These rate assumptions satisfied the two principal political goals that formed the inspiration for the co-ops. But as a matter of business planning, it turned out to be an exercise in magical thinking."

His analysis of the latest Obamacare calamity follows the demise of CoOportunity Health, one of the 23 nonprofit cooperatives created under the Affordable Care Act to generate more competition and choice in insurance markets dominated by giant for-profit companies.

The co-operatives were introduced by the Obama administration as a form of compromise between lawmakers who wanted publicly funded healthcare and those who supported a single-payer healthcare system.

The co-ops, which the law says must be "consumer governed" by boards elected by their customers, received nearly $2 billion in federal loans, including $145 million for to CoOportunity, The New York Times reported.

Although CoOportunity had seemed to thrive in the first year, with 120,000 customers in Iowa and Nebraska, the number was far more than the 15,000 it had initially prepared for.

CoOportunity had priced its plans too low and the excessive number of customers needed more medical care than expected, according to Nick Gerhart, Iowa’s insurance commissioner.

Gerhart took control of the co-op in December, and quickly deemed it was beyond saving.

While asking a court to liquidate it, he revealed that it had more than $150 million in liabilities, according to the Times.

The result was that tens of thousands of people had to scramble to find new insurance coverage while doctors, hospitals and other providers were left wondering whether they would ever get paid for their services.

"The co-ops weren’t inspired by a market need but a political creed," writes Gottlieb. "In the end, they served the latter master.

"The entire episode — its poor planning, the awful execution — will eventually vindicate Solyndra. At least that ill-fated green energy boondoggle had a business plan and some owners who were acting like they wanted financial return."

Gottlieb noted that healthcare policy analyst Merrill Matthews, who closely follows the insurance industry, was quoting from an S&P report recently when he "nicely summarized the financial carnage."

Matthews wrote, "All but one of the 23 co-ops included in our study reported negative net income through the first three quarters of 2014.

"Most co-ops' weak operating performance is a result of high medical claims trend and not enough scale to offset administrative costs … In fact, nine of the co-ops … reported a MLR of 100 percent or more through September 2014."

In other words, according to Gottlieb, they were spending more money on their medical claims than they were taking in as premium revenue.

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The nonprofit insurance co-operatives created under Obamacare are losing millions of dollars and going bankrupt because they were doomed from the start, Forbes reports.
obamacare, co-ops, bankrupt, forbes, CoOportunity Health, Scott Gottlieb
Thursday, 19 February 2015 09:17 AM
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