The federal government shelled out $2.4 billion in loans to a series of non-profit health plans under Obamacare, but now they're struggling to stay alive.
The plans, dubbed CO-OPs (Consumer Operated and Oriented Plans) were intended to increase competition in the insurance market and serve as a check on private insurers by providing an alternative that wasn't focused on profit. They were a compromise measure intended to satisfy liberals who wanted the law to set up a fully government-run health insurance option.
As it turns out, Obamacare's CO-OPs weren't focused on profit—or, it seems, financial viability of any kind.
The CO-OPs have struggled to meet enrollment targets, with 13 of the 23 non-profit plans showing "considerably lower" enrollment than projected, according to a report by the Health and Human Services Inspector General. Finances were shaky all around with 21 of 23 plans incurring losses through the end of 2014, the report says.
This isn't just a problem for the CO-OPs. It's a problem for the taxpayers. The $2.4 billion in loans given to these startup plans were supposed to be repaid to the government with interest. Loans given to start the plans were supposed to be repaid in five years; "solvency" loans were supposed to be repaid in 15 years.
But given the dismal finances of these plans, it's not clear that much of the money will ever be repaid. As the IG report dryly notes, "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."
Federal health care bureaucrats don't seem too bothered by this. While CMS has put four of the plans on a shorter leash through enhanced oversight, the IG reports, the health agency hasn't even set out clear rules about what constitutes viability or sustainability.
In the interests of public service, let me suggest one measure that might make it clear that one of these government-backed plans is unsustainable: It plans to shut down. That's what's happening to the Louisiana Health Cooperative, one of the health insurers started under the CO-OP plan, which says it will shutter before the year is out.
The reason for the closure is simple enough, according to the organization's CEO: not enough members, and therefore not enough money, to keep going. Records indicate that the company reported a $5.7 million loss last year, reports Modern Healthcare; for every dollar in premiums it collected, it paid out $1.13.
Shutting down is not going to help consumers. It's going to inconvenience them. And if other plans follow in shutting down, the CO-OP experiment will end up costing taxpayers more than a little bit of money.
Program failures like this serve as handy reminders that profits can actually provide helpful signals about the success and viability of an organization and its services. (For-profit insurers operating in Obamacare's marketplaces are handicapped to some extent by regulations governing the design of their products and capping profit margins, but they at least have some sort of market signals.)
And they demonstrate how poor the judgment of federal health bureaucrats is when it comes to picking successful entrants into a marketplace—even a marketplace, as with Obamacare's exchanges, that they helped design. At least in theory, the Centers for Medicare and Medicaid Services (CMS), which oversaw the program, only picked organizations that, as the IG report says, "demonstrated a high probability of becoming financially viable." It seems clear at this point that the majority of them are not, and that both taxpayers and consumers will lose as a result.