A nearly $150 million bill from the federal government has taxpayer-funded Obamacare plans angry, with some experts wondering if more co-ops could shut down in the coming months.
When the Obama administration last week announced payments under the risk adjustment program for the 2015 benefit year, the news wasn't good for the 10 Obamacare consumer oriented and operated plans, or co-ops, that remain out of the 23 original plans, which owe more than $150 million to the government.
On Tuesday, the payments claimed one victim, as Connecticut's insurance regulator shut down the HealthyCT co-op after it learned it owed $13.4 million in risk adjustment payments.
The payments come as insurance regulators must ensure that co-ops can offer plans in 2017 before open enrollment in Obamacare starts on Nov. 1.
"I do think that there will be some maneuvers or cases to be made that a couple can stumble on to the next year, but that is just putting off the inevitable," said Tom Miller, resident fellow at the right-leaning American Enterprise Institute.
The 14 that have shut down have cost taxpayers roughly $1.5 billion in loans and funding, an amount the Obama administration is trying to recover.
The risk adjustment program was created to help Obamacare insurers adjust to the new market. When Obamacare was implemented in 2014, nobody knew how many people would sign up or how healthy the enrollees would be.
The risk adjustment program transfers funds from insurers with healthy enrollees to insurers with the sickest claims.
An Obamacare enrollee receives an individual risk score that is based on his age, gender and health. The insurer then gets a risk score based on the average of all individuals' scores.
That score determines whether an insurer gets money from the risk adjustment program or must pay in to the program.
Some co-ops are complaining that they got a raw deal in 2015's payments.
The National Alliance of State Health Co-ops pointed to data that the nine co-ops and HealthyCT owe nearly $150 million in risk adjustment payments.
"One thing remains abundantly clear: as currently designed, risk adjustment will only lead to reduced competition, higher premium rates and deprive many Americans of the choices they desire in health insurance," said Kelly Crowe, CEO of the trade association.
Last month, the Maryland co-op Evergreen Health sued the federal government, arguing the payments were unfair and punished smaller insurers.
The risk adjustment payments appear to be the straw that broke the camel's back for HealthyCT.
The state's insurance regulator already flagged HealthyCT for needing more scrutiny, but it had enough money to "remain solvent for the foreseeable future," according to the notice from the regulator.
But that changed when the risk adjustment payment report was released June 30 and showed HealthyCT owed $13.4 million in risk adjustment payments. The regulator said the payment means that HealthyCT's financial outlook changed.
The Centers for Medicare and Medicaid Services said it is working to ensure that the remaining co-ops stay solvent.
"CMS and state departments of insurance, which are the primary regulator of insurance in their states, work aggressively to ensure that co-ops are well run and financially sound," CMS spokesman Aaron Albright said.
One measure CMS took was allowing co-ops to raise private capital to help offset any losses.
The co-ops, however, may not be valuable to private investors.
"Who wants to invest private capital in a losing proposition?" asked Miller, adding that there is "not really a capital market to blow these back up."
The risk adjustment payments are "mostly about the companies themselves," said Larry Levitt, senior vice president of the nonpartisan Kaiser Family Foundation. "They owe money primarily because they attracted a healthier-than-average pool of enrollees or they've had difficulty identifying those enrollees with chronic conditions as part of the risk adjustment system."
Levitt said the risk adjustment amounts could be hard to predict, but that uncertainty "should diminish over time."
The co-ops have complained about another government program intended to help them adjust to the new market: the risk corridor program. It works similar to risk adjustment in that it was created to help insurers set appropriate prices for their plans.
Insurers that receive big profits from their Obamacare plans must pay in to the program, and those with high losses get payments to offset them.
But the program hasn't worked out that way. For the 2014 benefit year, insurers requested nearly $3 billion in payments but received about 12 percent of that ($362 million). The lack of risk corridor payments was cited by some co-ops that shut down last fall.
A decision has not been made on payments for 2015. Both the risk adjustment and risk corridor programs expire in 2017.
It soon will be crunch time for the remaining insurance regulators to determine whether the co-ops should offer plans on Obamacare's marketplaces next year. Open enrollment starts on Nov. 1 and ends on Jan. 31.
Miller didn't have high hopes for the remaining co-ops.
"My guess is not all 10 will go under but [you will] have a majority not make the cut," he said.