ONE of many questionable ideas baked into Obamacare was creation of new “nonprofit” entities to sell insurance. Liberals argued that these health insurance cooperatives would increase competition and drive down insurance prices. Instead, most of those co-ops are now flailing, despite getting more than $2 billion from the federal government.
Fourteen of 23 co-ops established under Obamacare have enrolled far fewer people than projected, justifying concerns over their financial viability. Some enrollment numbers discussed at a recent congressional hearing were shocking. Minuteman Health in Massachusetts expected to enroll 37,003 people in 2014. As of April 15, only 1,435 had signed up. Tennessee Health Alliance enrolled only 354; officials had expected 25,082. The Tennessee co-op has received $73 million in federal funds — so far.
Nationally, 575,000 people were expected to buy insurance through the 23 co-ops established by Obamacare; just 450,000 did. Some co-ops blamed their woes on other Obamacare follies, such as the massive failure of state-run exchanges in Massachusetts and Oregon. It seems one Obamacare disaster births another.
But these complaints ignore the many flaws embedded throughout the federal health care law, including the co-op programs. Under federal law, the new co-ops can’t be run by an existing health insurance company. This means those businesses lack the historical actuarial data necessary to appropriately price insurance products and generate enough revenue to cover enrollees’ medical expenses. The co-ops also have to negotiate provider networks while lacking the patient volume that would allow them to obtain lower rates and provide policyholders a wide range of doctor choices.
A handful of co-ops did exceed enrollment projections. Consumers Choice Health Plan of South Carolina expected 19,204 enrollments in 2014, but had 51,506 by May 1. Company officials attribute this to offering the lowest premiums in many parts of South Carolina.
No doubt Obamacare backers will tout the South Carolina example as proof of the co-op program’s success. But it’s valid to question if Consumers Choice has achieved its enrollment figures by pricing rates too low. Long-established private insurance companies try to keep rates as low as possible for competitive reasons, but they also have an obligation to generate revenue sufficient to cover the medical expenses of policy-holders.
That no private company offered rates as low as Consumers Choice suggests the co-op may ultimately lack the reserves necessary to cover operational expenses. Thus, those low rates may be of little true benefit to policyholders.
The majority of Obamacare co-ops face a financially precarious future due to low enrollments, while those that exceeded enrollment goals may be taking on excessive financial risk.
At the same time, federal law allows co-ops to count loans as “assets,” which artificially inflates reports of their financial standing. Even so, the Office of Management and Budget projects that up to 44 percent of co-ops will default on their federal loans. Federal law apparently provides no effective way to recover those loans in case of default. And at least 11 co-ops were reportedly licensed in such a way that if they go bankrupt, those businesses may not be able to pay outstanding medical claims before relieving creditors.
The idea that government-created “nonprofit” businesses would operate more efficiently than private companies was always a stretch. The expensive, slow-motion failure of the Obamacare co-ops reinforces that fact.