Tennessee will become the sixth state to shut down its Obamacare-funded insurance co-op, announcing Wednesday it will not offer insurance coverage in 2016.
The decision comes a few weeks after the federal government warned Tennessee of financial problems with the co-op including failing to pay agents and brokers and rising patient complaints. Tennessee's planned closure comes less than a week after Kentucky decided to also close its doors after financial troubles.
The decision means only 17 insurance co-ops are left. The co-ops were created by the Affordable Care Act to offer more competition in the insurance marketplace exchanges.
But the co-ops have been plagued by financial troubles since they went online. Co-ops received more than $2 billion in federal funding as of December 2014.
The Centers for Medicare and Medicaid Services wrote to the co-op called Community Health Alliance in late September with concerns about its financial viability.
The agency, which oversees the co-ops, noted that the Tennessee insurer had issues processing enrollees and transactions due to problems with its software vendor. The problems led to consumer complaints.
CMS was also concerned about the co-op's viability. The insurer has 29,773 members and planned to increase its membership, but it has since raised rates by 44 percent.
The agency wondered what effect the rate hike would have on its financial viability.
The problem is one experienced by several co-ops, which initially offered lower premiums that drove people to enroll. However, the insurance startups didn't have enough money to pay off medical claims, leading to financial troubles.
The agency put the Tennessee co-op on an oversight plan that required the insurer to submit monthly financial and complaint reports.
The co-op urged its customers to find a new plan through the next open enrollment which begins Nov. 1. It will continue to offer health coverage through Dec. 31.