Co-Op Officials: Federal Funding Cuts, Restrictions Led to Closures

On Thursday, administrators of cooperative health plans told lawmakers that the recent string of closures among such insurers was spurred by higher-than-expected claims and funding shortfalls, Modern Healthcare reports.

The comments came during a hearing of the House Energy & Commerce Subcommittee on Oversight and Investigations (Muchmore, Modern Healthcare, 11/5). Lawmakers on the House Ways and Means Subcommittee on Health earlier this week also examined co-ops.

Background

Co-ops were created under the Affordable Care Act to offer lower prices and compete with large insurers, such as Blue Cross and Blue Shield affiliates. The federal government provided $2.4 billion in startup loans to co-ops.

An HHS Office of Inspector General audit released earlier this year found that 21 of 23 co-ops operated at a loss in 2014. Further, 13 of 23 co-ops fell short of enrollment goals. The 23 co-ops lost a total of about $200 million in the first six months of this year, despite enrollment in the health plans increasing twofold over the past 12 months (California Healthline, 10/19).

Twelve of the co-ops have shut down or announced their closures, either voluntarily or because of pressure from state and federal regulators. Some of the co-ops have cited lower-than-expected risk corridors payments as part of their decisions to close (Rosenfeld, "Road to Reform," California Healthline, 11/4).

Hearing Details

During the hearing, state regulators and co-op officials told lawmakers that the co-ops had been hurt by several factors (Howell, Washington Times, 11/5).

For example, John Morrison, vice chair of the Montana Health Co-Op, said the federal government impeded the health plans' success through:

• Funding cuts;
• Government loan caps;
• A lack of enrollment limits during the co-ops' first year of operation;
• Restrictions on the use of federal money for marketing campaigns; and
• Restrictions on the use of private capital (Modern Healthcare, 11/5).

According to CQ HealthBeat, Congress has consistently cut funding for the co-op program since fiscal year 2011. Meanwhile, FY 2016 spending bills in both the House (HR 3020) and Senate (S 1695) included $18 million in cuts to the program, which likely accounts for most of the initiative's remaining funding (CQ HealthBeat, 11/5).

Peter Beilenson, CEO of the Maryland co-op Evergreen Health, said CMS' requirements for the insurers also posed barriers to success. To address the issue, Beilenson said the program should:

• Allow co-ops to raise private capital; and
• Revise a risk formula that has put the co-ops at a disadvantage.

Lawmakers Direct Blame

Meanwhile, Republican committee members blamed HHS and CMS for imposing unnecessary hurdles on co-ops and for failing to share information on the program's problems.

Rep. Michael Burgess (R-Texas) said the co-op program "was another example of the [Obama] administration's desire to conduct dangerous experiments with our nation's health care," adding, "The rate of failures continues to accelerate."

However, Democrats argued that GOP lawmakers were using the issue as a chance to attack the ACA, noting that Republican-backed funding cuts for the program were in part to blame for the health plans' failures.

Rep Diana DeGette (D-Colo.) said, "This should not be a partisan issue, we should all figure out what's going on with these closings" (Armour, Wall Street Journal, 11/5).