Another taxpayer-funded Obamacare insurance carrier has shut down due to a big bill from the federal government, the third in about two weeks to shut down, leaving one-third of the original group.
Illinois’ consumer oriented and operated plan shut down Tuesday, leaving seven out of the original 23 co-ops. The remaining co-ops have lost an estimated $1.7 billion in taxpayer funding in the form of startup and solvency loans.
The state’s regulator blamed a bill from the federal government under Obamacare’s risk adjustment program. It is the second co-op in a week to shut down and the 16th out of the original 23 that were created in 2015.
The regulator said a major problem was the federal government wouldn’t allow the co-op to suspend a payment owed under the law’s risk adjustment program. The program pays out to insurers that have the sickest claims and forces insurers with too many healthy claims to pay into it.
When the administration announced the risk adjustment payments for the 2015 benefit year on June 30, 10 co-ops remained. Combined, they owed $150 million in risk adjustment payments.
Now seven co-ops are left, with Oregon’s co-op shutting down late last week partly because of the risk adjustment payment and poor finances due to setting prices too low. On July 5, Connecticut’s co-op also shut down.
Illinois regulators said in a statement they tried to get the Centers for Medicare and Medicaid Services to suspend the risk adjustment payment for the co-op called Land of Lincoln Mutual Health Insurance Co.
However, they were rebuffed and the regulator was forced to shut it down.
“This is despite [the-co-op] being owed an outstanding payment of approximately $70 million as part of the related federal risk corridor program,” the regulator said.
Ilinois isn’t alone in not getting enough money from the risk corridor program, which was another program meant to mitigate losses for insurers.
Insurers that reached a certain profit had to pay in to the program to help other insurers cover losses.
Last year, Obamacare insurers requested nearly $3 billion in risk corridor payments but only received around 12 percent of that, or $362 million.
The dearth of risk corridor payments forced many co-ops to close. Part of the problem was that the co-ops are startups that didn’t have enough capital to offset major losses.
Another issue was too many co-ops set their initial prices for plans too low and had trouble paying for claims, according to a report from a government watchdog.
CMS said it would not comment about the closure.
Republicans criticized the closure of another Obamcare co-op, questioning what the administration is doing to shore up the remaining ones.
“Three co-ops have gone belly up in the span of a week at a cost of $340 million and yet it’s business as usual for the Obama administration. Where is the urgency?” said Rep. Fred Upton, R-Mich.
