Obamacare's co-op plans are in trouble. The consumer-operated and -oriented plans — co-ops, for short — launched with Obamacare grant money as nonprofit insurers to sell on the health insurance marketplaces.
The hope was they would push other plans to lower premiums — but a new federal report suggests that the co-ops are not faring well.
Most of them have not hit their enrollment targets. And 19 of them didn't bring in enough in premiums to cover their claims, a difficult way to run an insurance business.
"The low enrollments and net losses might limit the ability of some CO-OPs to repay startup and solvency loans and to remain viable and sustainable," the report, from the Health and Human Service Inspector General's Office, warns.
Co-ops have struggled to attract enrollees
The Affordable Care Act provided $3.4 billion to help fund new co-op plans, money that would help the insurers get off the ground.
In order to get that money, co-op applicants had to send the federal government a feasibility plan, an outline of how many people would sign up in order to make their new business viable.
Most co-ops, the OIG reports, have fallen short of those projections. Five — co-ops started in Arizona, Illinois, Massachusetts, Oregon, and Tennessee — have attracted less than 10 percent of their expected enrollment.
There are exceptions to the rule: New York's co-op, for example, has had a remarkably successful launch, enrolling five times as many patients as expected. But most of them haven't. And that means they bring in less revenue than expected, too.
The biggest problem: Co-ops' premiums aren't covering claims
It would make sense that at this early stage in the game, some of the co-ops would be losing money. These are new businesses, after all, attempting to build name recognition and investing in a lot of startup costs that bigger insurers, like Aetna or Cigna, already covered decades ago.
But there's a troubling trend in the co-ops' financial data: The premiums they're bringing in generally aren't covering the claims they pay out. You see some of the states' discrepancies in this chart. All told, 19 of the 23 co-ops paid out more in claims than they took in as premium revenue.
And this is not something you see in other insurance plans. Typically, claims eat up about 80 to 85 percent of subscriber claims. That leaves the rest for things like administration and profit.
Even the plans that are doing great on enrollment face this problem. The co-op in New York, for example, was $28 million short of merely breaking even. This suggests that New York succeeded at enrollment by offering low prices. But the obvious flip side is that lower prices provide less revenue — and in 2014 weren't able to cover half a million new patients' medical costs.
Why didn't the co-ops bring in enough money? The OIG report suggests a few explanations: "higher-than-estimated enrollment of members with more expensive health conditions, enrolling fewer-than-expected young and healthy members, or inaccurate pricing of premiums."
Will co-ops pay back their loans?
Depending on which type of grant they received in 2012 (there were two types), they have to pay back the money within either five or 15 years. That sets a first deadline in 2017, when co-ops should have to pay back the startup funding from the federal government.
Will they be able to do it? HHS spokesperson Meaghan Smith says the government still remains confident in the program.
"Like start-ups in a competitive market, CO-OPs may experience short-term ups and downs," she said in an emailed statement. "CMS [the Center for Medicare Services] takes its commitment to CO-OP enrollees and the American taxpayer seriously, and is working with these new businesses to help them become an established, sustainable, and affordable option for consumers."
But with their low enrollment and high claims costs, it's not clear whether all co-ops will ultimately become that type of option. And the Affordable Care Act doesn't provide much guidance on what steps the federal government could take to collect on loan payments made to a failed co-op.
There's only one paragraph in the law on the subject, which directs the secretary to "provide that such loans shall be repaid." How aggressively to enforce that provision could be a decision that, in the future, the Obama administration will have to grapple with.