UPDATE x5: GOP Sabotage Claims Scalp: Kentucky CO-OP goes under due to Risk Corridor shortfall, 51K kicked off their plans
Thanks to Zachary Tracer for the heads up.
The short version is that there were 3 funding programs put in place under the Affordable Care Act designed specifically to help smooth the waters and keep insurance carriers afloat for the first few years until they got past the bumpy transition period. One of these was called the "Risk Corridor" program. Basically, the carriers who lose their shirts the first 3 years were supposed to have at least a portion of their losses covered to tide them over; call it "training wheels" for the insurance industry. The funding was supposed to come partially from the other insurance companies which did better than expected...but any shortfall was supposed to be covered by the federal government, with the caveat that any surplus paid to the government stayed there as a type of profit.
Unfortunately, as noted by the Milliman actuarial firm:
Several causes underlie the 2014 funding shortfall, and these factors will continue to have implications for 2015 and 2016 receivables.
The risk corridor program was designed as a two-sided program requiring insurers with better-than-expected financial results to pay the federal government a portion of their earnings, while at the same time requiring the federal government to reimburse a portion of losses to insurers with worse-than-expected financial results. The program was not originally required to be budget neutral. In other words, payments out of the program could be greater than payments in.
That started to change in 2014, well after premium rates were set, when federal regulators began to talk about budget neutrality. This concept became official with the Cromnibus bill passed by Congress in late 2014. That bill required that 2014 risk corridor receivables paid in 2015 be funded through payables into the program from other insurers. Even before the 2014 funding shortfall was officially announced on October 1, 2015, many industry analysts foresaw that program receivables would far outstrip payables.
Yes, that's right: The "CRomnibus Bill" of December 2014, which, among other items, included this tidbit:
The government funding bill colloquially called the CRomnibus that the House passed on Thursday night included a GOP-proposed change to an Obamacare program long loathed by Republicans.
A House aide confirmed to TPM that Republican staffers requested the change to the so-called risk corridor program, which is designed to keep premiums stable by making payments to insurers if they lose more money than expected in the law's first few years.
Ut-oh...a "change" to anything Obamacare-related can only mean one thing...
...The CRomnibus, which funds most of the government through the next year, prohibits the Health and Human Services Department from transferring funds from other sources to fund the program. The practical impact, one policy expert told TPM, is that HHS can therefore only use money brought into the program to make payouts, effectively making it revenue neutral.
"As far as anyone can tell, that's what's going on," Timothy Jost, a health law professor at Washington and Lee University who is supportive of the law, told TPM. In theory, if the program doesn't bring in enough money to make its payouts, that could mean insurers will have to -- at the very least -- wait a year before getting their money. In turn, that could have a negative impact on 2016 premiums if insurers have to take a loss in the meantime.
"I think it's important, but I don't think it's the end of the world," Jost said, explaining that major insurers should have the bandwidth to absorb any adverse effects. But smaller insurers might be relying on the risk corridor program, along with the law's reinsurance and risk adjustment programs that are also designed to keep prices stable in the law's early years, to remain solvent.
And 9 months later, that's exactly what just happened to the Kentucky Health Cooperative...one of the "smaller insurers" which was itself also created by the Affordable Care Act:
LOUISVILLE, Ky., Oct. 9, 2015 /PRNewswire-USNewswire/ -- Kentucky Health Cooperative, Inc., the nonprofit health insurance company serving all 120 Kentucky counties, will not offer health insurance plans onKentucky's health insurance Marketplace, or Exchange, when Open Enrollment for 2016 coverage starts onNovember 1.
"It is with sadness that we announce this decision," said Kentucky Health Cooperative interim CEO Glenn Jennings. "This very difficult choice was made after much deliberation. If there were a way to avoid it and simultaneously do right by the members, providers and all others that we serve, we would do so.
"In plainest language, things have come up short of where they need to be," Jennings added.
The decision was reached as a result of not having received federal risk corridor funding on which the organization had relied, Jennings explained.
Kentucky Health Cooperative, also known as "the CO-OP," has sustained itself for almost two full years of operation and has effectively reversed a significant financial loss trend. In 2014, the CO-OP's losses tallied around $50 million. By the end of the first half of 2015, losses had been slowed to $4 million.
"We were on track to reverse direction and begin operating in the black, and we expected this to come about in 2016," Jennings said.
Last week's announcement of a risk corridor reimbursement to the nation's CO-OPs of just 12.6% (or, for Kentucky, a payment of $9.7 million, from a starting number of $77 million), led to an unavoidable outcome, Jennings said. He emphasized that Kentucky Health Cooperative is continuing to meet its financial obligations.
Kentucky Health Cooperative has never struggled to meet membership projections that were initially set at around 30,000. Enrollment spiked to over 57,000 last year. Presently, the company is serving about 51,000 members. Current memberships will end on December 31, 2015. New memberships will not be added.
In other words, the Republican Party's sabotage efforts last winter worked exactly as they intended: By crippling the funding program, they effectively suffocated the Kentucky CO-OP, destroying a small business which was on it's way towards profitability...if it had just been given a lifeline for one more year.
Result? Well, for one thing, all of their employees are presumably now out of a job. For another, around 51,000 Kentucky residents will be "kicked off their plan that they (presumably) like", a sickening irony given all the "If you like your plan you can keep it" backlash President Obama received two years ago.
Anyway, those 51,000 people will have to shop around now. There are 3 other companies they can choose from: Anthem, Golden Rule and CareSource.
The Kentucky CO-OP is the 5th of the ACA-enabled CO-OPs to go under so far. While the causes of death of the other 4 (CoOportunity of IA/NE; Health Republic of NY; and CO-OPs in Nevada and Louisiana) are varied and can't be pinned on any one thing, in the case of Kentucky, this was institutional murder by strangulation on the part of Congressional Republicans.
UPDATE: Sure enough, not only have the criminals returned to the scene of the crime, they're actually boasting about it:
— Leader McConnell (@SenateMajLdr) October 9, 2015
UPDATE x2: For the record, there were, I believe, 23 CO-OPs to begin with. In addition to the 4 (5 now) which have gone kaput, 2 others (in Maine and South Carolina) are actually doing pretty well, last I heard, while the other 16 are in the red to various degrees. I have no idea how many of them are at risk of being destroyed by the risk corridor debacle, but I know that at least one, in Colorado, isn't taking the situation lying down:
THE GOVERNMENT’S FAILURE TO MAKE GOOD ON ITS OBLIGATIONS
Small, regional health plans have been operating responsibly in serving the need for affordable, quality healthcare under the assumption–until recently–that the government would pay them the risk corridor payments they were owed. In 2014, the amount the government owed health insurers under the risk corridor program was higher than the amount that profitable health insurers paid into the program.
So instead of making good on its obligations, on October 1, 2015, the Feds informed all carriers they would only receive 12.6 percent of the funds they had been promised. This shortfall hits smaller plans harder than more than big national carriers, and puts hundreds of thousands of members across the nation at risk of losing vital access to affordable health insurance options through small, regional plans.
WHY COLORADO HEALTHOP IS CONCERNED
Colorado HealthOP has enough money in the bank to adjust for the shortfall through 2016. However, regulators are now worried that the federal government will also fall short in delivering the risk corridor payments in future years. If we are forced to assume that the government will only pay a fraction of what they owe next year, Colorado HealthOP is in jeopardy of not having enough capital set aside to meet Colorado’s regulatory requirements.
COLORADO HEALTHOP AND OTHER HEALTH PLANS ARE ASKING CONGRESS AND THE OBAMA ADMINISTRATION TO MEET THEIR OBLIGATIONS.
Statement from Colorado HealthOP Chief Executive Officer, Julia Hutchins
“Colorado HealthOP is prepared to fight against congressional irresponsibility on behalf of our 80,000 members. The federal government has reneged on its obligations to pay Colorado HealthOP more than $10 million in risk corridor payment, which jeopardizes its ability to meet capital reserve requirements. These funds are owed because Colorado HealthOP took on the risk and fulfilled its responsibility of providing affordable health coverage for those who were previously uninsured and underinsured. Without Colorado HealthOP, consumers are left with higher prices and fewer options.
Colorado HealthOP is poised to make a profit and be cash-flow positive throughout 2016 and pay back its loans ahead of schedule. Our business model works. It’s the vagaries of politics that are broken and threaten to place an unnecessary burden on the backs of Colorado consumers. Colorado HealthOP has fulfilled its responsibility; now it is time for Congress to step up and fulfill theirs.”
UPDATE x3: Thanks to Scott Belsky for reminding me that the KY CO-OP had been planning on expanding operations into West Virginia, providing more competition in a state which only has 2 carriers operating on the exchange this year:
But for 2016, CareSource will also be offering plans in 15 of West Virginia’s 55 counties (Boone, Brooke, Cabell, Clay, Hancock, Kanawha, Lincoln, Marshall, Mason, Ohio, Pleasants, Putnam, Wayne, Wirt, and Wood).
Kentucky Health Cooperative (a CO-OP created under the ACA) had planned to expand into the West Virginia exchange in 2015, but in early November 2014, the CO-OP announced that they were postponing their expansion into West Virginia by a year, saying that they needed additional time to make sure that the new West Virginia Health Cooperative would be fully functional before being offered for sale in WV.
Welp. So much for that. Now they'll never have the chance to do so.
UPDATE x4: OK, I've since been informed that they had already changed their minds about expanding into West Virginia altogether before the RC report came out, so I can't really pin that part on it.
UPDATE x5 10/12/15: Man, I wish I had read this Washington Post article before writing mine; it turns out the CO-OP program was sabotaged in several additional ways as well:
The program has been under siege from the start, including from the insurance industry. Before the law’s passage, government grants to help them get going were switched to loans. None of that money could go for advertising — a wounding rule for new insurers that needed to attract customers. Moreover, the amount available was cut from $10 billion to $6 billion and then later, as part of the administration’s budget deals with congressional Republicans, to $2.4 billion. Federal health officials abandoned plans for a co-op in every state.