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By Sara Hansard
Oct. 13 — A Kentucky nonprofit health insurer created under the ACA failed because of a lack of funding and support from the federal government, the head of the group that represents the nonprofit CO-OP insurers told Bloomberg BNA Oct. 13.
“It is unfortunate that the federal government had not done more preparation” around problems with risk corridors, Martin Hickey, chief executive officer of New Mexico Health Connections and chairman of the National Alliance of State Health Cooperatives, said in a telephone interview. While Congress made it “difficult” to fund the risk corridors program by adding budget restrictions to the program, Hickey said “there has not been explanations of why other pools of money,” such as $1 billion to $2 billion in excess Affordable Care Act reinsurance program funds, were not tapped to make up for the 12.6 percent payout on the risk corridors program.
Kentucky Health Cooperative interim Chief Executive Officer Glenn Jennings said in an Oct. 9 statement that the nonprofit, created under the ACA with $146 million in U.S. loans, wouldn't offer plans for 2016 “as a result of not having received federal risk corridor funding on which the organization had relied.” Kentucky is the fifth of 23 CO-OPs created under the ACA to go out of business since they started operating for the 2014 plan year. The risk corridors program is designed to aid ACA insurers that suffer losses.
The Centers for Medicare & Medicaid Services said in an Oct. 1 bulletin that insurers requested $2.87 billion for 2014 payments under the temporary risk corridors program, which is in operation from 2014 through 2016, but they will receive only $362 million, a payout rate of 12.6 percent.
In a statement sent to Bloomberg BNA Oct. 13, the CMS said that “As a startup business, we recognized that not all CO-OPs would succeed. We recognize that for Kentucky Health Cooperative, a lower than expected 2014 risk corridor payment may have raised additional solvency concerns.”
The risk corridor payments are determined by a mathematical formula that compares claims and premiums, the CMS said. For 2014, the first year of the program, payment requests by issuers exceeded their charges, it said. The CMS said on Oct. 1 it recognized that the lower than expected payments may also raise solvency concerns “for a limited number of insurers,” and it “immediately contacted those states and insurers and began working with them throughout this process.”
Kentucky Health Cooperative said in its statement that it is serving about 51,000 members and current memberships will end Dec. 31. The CO-OP's initial membership projections were about 30,000, it said.
In 2014 the CO-OP's losses tallied about $50 million, but by the end of the first half of 2015 losses had been slowed to $4 million, the CO-OP said in its statement. Under the CMS risk corridor payout, Kentucky is to receive $9.7 million rather than $77 million as expected, which led to “an unavoidable outcome,” it said, adding that it is continuing to meet its financial obligations.
In December 2014 President Barack Obama signed legislation containing a provision called for by some congressional Republicans requiring the risk corridors program to be budget neutral, meaning funding had to come from within the program without taking outside money.
Later in December 2014 actuarial consulting firm Milliman Inc. released a brief saying the Department of Health and Human Services may be able to make payments to insurers under the risk corridors program by adjusting temporary reinsurance benefits in the individual market. In June the CMS said it would increase payments under the reinsurance program, another ACA risk adjustment program, to reimburse insurers 100 percent of high cost claims rather than 80 percent as previously expected.
However, Hickey said that even after the higher payments were announced, the government agencies “still have $1-$2 billion left over” from the reinsurance program. The CO-OPs, created under the ACA's Consumer Operated and Oriented Plan program, have been hard hit by the law's risk adjustment program.
New York-based Health Republic Insurance, the largest of the CO-OPs, announced in September it is closing, and health insurers in Nevada, Louisiana and a CO-OP that operated in Iowa and Nebraska have also announced they are closing or have been closed.
Hickey blamed “the highly flawed risk adjustment program and risk corridor program,” which he said “desperately need to be reviewed independently and changed” as a major reason for problems experienced by the CO-OPs. Another problem for the CO-OPs is “the lack of action by [the Center for Consumer Information and Insurance Oversight (CCIIO)] in finding and assisting in the acquisition of third-party loans and investment,” he said.
In addition, Hickey said, CCIIO only sent limited guidance to CO-OPs Sept. 30, despite the fact that “We have begged them for assistance in this since April 2014 since it was apparent Iowa was going to get into difficulty on this.”
Deep Banerjee, director of insurance ratings at Standard and Poor's Ratings Services and the lead author of a May report highlighting problems with the lack of funding for the risk corridors program, told Bloomberg BNA Oct. 13 that the risk corridors program doesn't include a requirement to be budget neutral.
Under that program, insurers with claims totaling less than 97 percent of premiums must make payments to the program, while insurers with claims of more than 103 percent of premiums are to receive payments. “The problem is in a given year equal numbers of insurers won't be on both sides of the corridor,” Banerjee said. In 2014 a majority of the plans had a bad year, and “there are just not enough insurers on the profitable side to pay in to cover the losses for the insurers that are on the unprofitable side of the corridor,” he said.
Larger plans “have a much bigger base of capital and they also had diversified businesses” apart from the individual market in group plans, Medicare and Medicaid, Banerjee said. “They will survive. They will be fine.”
However, “the issue is for the smaller plans for whom this corridor receivable is a very significant part of their balance sheet,” Banerjee said. “Without that coming to them they are in bigger trouble.”
In addition, Banerjee said, despite low-cost loans from the government, “The problem with the CO-OPs is they're bleeding money.” Only three of the 23 CO-OPs made some money in the first half of 2015, he said. If companies have to rely on the risk corridor payments to remain solvent “then you're already in trouble,” he said.
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