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The Patient Protection and Affordable Care Act (ACA) created the Consumer Operated and Oriented Plan Program – known as the CO-OP Program. Under the CO-OP Program, the Department of Health and Human Services (HHS) distributed loans to consumer-governed, nonprofit health insurance issuers. A new Majority Staff Report of the U.S. Senate Permanent Subcommittee on Investigations says that HHS ultimately received $2.4 billion of taxpayer money to fund 23 CO-OPs that participated in the program. Twelve of those 23 CO-OPs have now failed, leaving 740,000 people in 14 states searching for new coverage and leaving the taxpayer little hope of recovering the $1.2 billion in loans HHS disbursed to those failed insurance businesses.

Congress initially allocated $6 billion for the Obamacare CO-OP program, with the goal of establishing CO-OPs in all 50 states as well as the District of Columbia. Subsequent legislation slashed some of this funding. The CO-OPs ultimately suffered $376 million in losses in 2014 and more than $1 billion in losses in 2015. By the end of 2014, the 12 collapsed insurance nonprofits had already exceeded their projected worst-case-scenarios by more than $263 million, four times more than what they initially projected.

None of the failed CO-OPs have repaid a single dollar, principal or interest, of the $1.2 billion in federal solvency and start-up loans they received. In addition, there remains substantial liability for unpaid claims including fully processed 2015 claims as well as incurred but unprocessed 2015 claims. The CO-OPs report that they continue to receive some 2015 medical claims through the first quarter of 2016, and many received claims are still being processed to determine coverage.

Based on the most recent balance sheets provided to the Subcommittee, the failed CO-OPs currently owe an estimated $742 million to doctors and hospitals for plan year 2015, including incurred claims. An insolvent health insurer’s debt to providers takes priority over other liabilities, so those claims are likely to be the first to be paid out of remaining assets. But if a CO-OP’s medical claims alone exceed assets, payment to providers can be in doubt. Based on their submissions, at least six CO-OPs currently owe more in medical claims alone than they hold in assets. Three of those CO-OPs – the Colorado CO-OP, the South Carolina CO-OP, and CoOportunity – have access to guaranty associations capable of paying some or all unpaid medical claims.

Guaranty associations serve as a mechanism to pay covered claims occurring as a result of an insurer’s insolvency. Associations were created to alleviate these problems and ensure the stability of the insurance market. The Colorado CO-OP projects that substantially all of its $96.6 million in unpaid medical claims will be paid by the state’s guaranty fund. Similarly, the South Carolina CO-OP estimates that all of its $48 million in unpaid claims will be paid by the state’s guaranty fund. The first CO-OP to close, CoOportunity, reports that $114.1 million of its unpaid medical claims have now been paid by the Iowa and Nebraska guaranty associations.

The other three CO-OPs with serious shortfalls, however, will not be bailed out by guaranty funds. The New York CO-OP reports that it had $379.5 million in unpaid medical claims and $157.54 million in assets as of December 31, 2015 – a $222 million shortfall, excluding any other liabilities. No portion of that shortfall will be covered by New York’s guaranty fund. Most of the New York CO-OP’s unpaid claims are owed to doctors and hospitals, and a non-negligible share – $373,000 as of January 31, 2016 – is owed directly to patients.

Similarly, the Louisiana CO-OP reports $34.4 million in assets and $43.3 million in unpaid medical claims as of January 31, 2016, and none of that $9 million shortfall will be covered by a guaranty fund. The same is true of the $7 million shortfall on the Kentucky CO-OP’s January 2016 balance sheet, which shows $77.5 million in unpaid claims and only $70.5 million in assets.

It is likely that some of the cost of these losses will translate to cost drivers in workers’ compensation claims.  Certainly, the guarantee funds will distribute the cost by way of assessments to other insurers who will in turn pass the costs to policyholders everywhere.  Medical providers who are not paid in one system, will demand higher fees to compensate them in another system.  The epic failure of the CO-OP Program is not good news for anyone.