There’s a failed piece of Obamacare on life support — and it’s well past time to pull the plug on it.
Created by the Affordable Care Act, Consumer Oriented and Operated Plans (CO-OPs) are non-profit health insurance companies started using low-interest loans from the federal government. The brainchild of former Sen. Kent Conrad (D-ND), CO-OPs were part of a compromise when Republicans and Democrats disagreed over a public option.
CO-OPs were supposed to inject competition into markets which had only limited insurance options — which is actually a pretty good idea (in theory), as nonprofit insurance companies are nothing new to insurance markets. So in 2013, the government started 23 CO-OPs with $2.4 billion in federal loans.
But of those 23 CO-OPs, 19 have shut down already — and it’s just a matter of time before the remaining four collapse too, which is terrible news for anyone getting their healthcare through them.
One problem was the use of some fancy accounting foot-work intended to make CO-OPs appear more financially viable than they actually were. Because if history has shown us anything, it’s that you can never go wrong by manipulating accounting data.
The Centers for Medicare & Medicaid Services (CMS) allowed some CO-OPs to convert their loans into surplus notes — so they could move their debts from the “liability” column into the “asset” column. Not a great long-term solution, because as every first-year accounting student will tell you: if your debts outweigh your assets, then your asset’s in jail.
So 12 CO-OPs pulled this tricky accounting. Four of these went out of business within six months, four went under sometime after that, and the remaining four are the ones on life support: those survivors are in Maine/New Hampshire, Montana/Idaho, Wisconsin, and New Mexico. By all indications, the New Mexico one seems next in line to go.
According to quarterly financial statements released on June 30 (the most recent ones available), New Mexico Health Connections had only $1.2 million in capital remaining, down from $9.2 million at the end of March. And bad news for health insurers at the top of the year only gets worse as they become less profitable throughout the benefit year: more people have met their deductibles and out-of-pocket caps, so insurers have to pay out more. Meaning third- and fourth-quarter losses will get worse.
But wait, there’s more. Even this grim forecast might be optimistic!
NMHC’s $13.1 million in start-up loans are due before the end of 2018 (five years went by fast!) and their loans have lower priority in the case of insolvency, meaning the government is at the back of the line when the bank carves up the company's remaining assets are in liquidation. If worse comes to worst, and members who received out-of-network care will be left responsible for the entire cost of their care and New Mexico health care providers will be left with uncollectible debts.
This is all of particular concern right now, shortly before open enrollment starts. Any proposal to maintain the CO-OP program requires a thorough review of their financial viability and if they could ever repay their loans, whether start-up or solvency. (There is no public report showing any of these CO-OPs have repaid the government and it seems increasingly unlikely any of them will.)
CO-OPs were a well-intentioned idea that probably looked good on paper but were doomed to failure. Keeping broken CO-OPs around will only hurt the patients who buy into a program that’s going to collapse — likely in the middle of next year — and leave them without insurance. These last four are on life support. Pull the plug and end it.
Jared Whitley is a long-time politico who has worked in the U.S. Congress, White House, and defense industry. He is an award-winning writer, having won best blogger in the state from the Utah Society of Professional Journalists (2018) and best columnist from Best of the West (2016). He earned his MBA from Hult International Business School in Dubai. To read more of his reports — Click Here Now.
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