Why Was the Iowa/Nebraska Health Insurance Co-Op Allowed to Fail?

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February 10, 2015; Lincoln Journal Star

On Christmas Eve, the Iowa Insurance Division took over CoOportunity Health, one of the 23 nonprofit health insurance cooperatives created as a result of the Affordable Care Act. CoOportunity ran into trouble, even after signing up 113,000 customers in 2013 and 2014, because medical insurance claims were running higher than the income the cooperative was generating through insurance premiums plus whatever operating funding it was able to obtain from the federal government.

Now, the two senators from Iowa, Republicans Charles Grassley and Joni Ernst, and Republican Senator Deb Fischer from Nebraska, have written to Marilyn Tavenner, the administrator of the federal Centers for Medicare and Medicaid Services that oversees the co-ops, to complain that the agency failed to support CoOportunity during its time of financial distress—which, oddly enough, was caused in part by the CoOportunity’s surprising success in garnering enrollments (in both Iowa and Nebraska). The senators acknowledged that CoOportunity had actually been successful in this regard: It had “the second highest enrollment of any co-op. Unfortunately, this number was much higher than anticipated and as a result, CoOportunity faced significant financial pressures.”

“Both CoOportunity and the Iowa Insurance Division informed CMS multiple times that without additional funding, the co-op could not continue to operate,” the three senators wrote. “In December 2014, CMS announced it would give no more funding to CoOportunity.” Essentially, they want to know why CMS essentially encouraged CoOportunity and then left it high and dry.

Although Ernst is completely new and Fischer was only elected in 2012, Grassley has been around for the duration of the Affordable Care Act battle. He knows full well that Congress cut appropriations to the co-ops and restricted what they could do with the federal funds they got. The fact that the co-ops have done as well as they have in a number of states is a testament to the ingenuity and drive of nonprofit enterprises, as we have documented here at NPQ, not because they were given a leg up against their mammoth health insurance competitors.

Richard Piersol’s article in the Journal Star notes that the other Nebraska senator, Ben Sasse, added a comment to the letter of his three colleagues:

“This is a tragic example of the pain caused when federal regulators try to centrally plan life here in Nebraska. Given the fact that the vast majority of these ObamaCare co-ops have suffered first-year losses, HHS owes taxpayers and policyholders some answers.”

Unlike the Grassley letter, which could be debated in terms of what CMS could have done for CoOportunity, perhaps should have done, and might be now doing to protect CoOportunity policy holders, the Sasse comment is nonsensical, like he was speaking from a standard anti-Obamacare political playbook. The uniqueness of the co-ops like CoOportunity, explaining their success in enrollments, is that they weren’t delivering centrally planned insurance packages, as Sasse charged, to Nebraskans and Iowans, but crafting policies in response to local priorities and needs. That’s in fact why CoOportunity did so well in attracting customers in rural parts of Nebraska, addressing their unmet needs and, like many of the co-ops, listening intently to what underserved and unserved customers might want from their insurers. That’s exactly how they had to compete—by offering products that weren’t centrally designed and marketed like widgets, but fitted to the needs of the consumers the co-ops wanted to serve.

The reality is this: As of the first three quarters of 2014, many of the co-ops are struggling with negative cash flows, in part because by providing coverage to the previously uninsured and underinsured, customers are using their new coverage to get the healthcare treatments they might otherwise have put off or not gotten at all. Republicans are nearly gleeful with their “I told you so” smirks that these new co-ops wouldn’t be able to compete with the likes of Anthem and other behemoths in the market, and it’s not clear that Democrats were all that much more enthusiastic about these newcomers. But the information on the first three quarters of 2014 is just that, only three quarters into a completely new market for the co-ops and their customers. As markets and customers adjust, the finances of the cooperatives may well improve.

But it won’t be because Congress helped out. To the contrary, through its budget cuts and policy constraints, Congress did no great favors for these new nonprofit alternatives in the health insurance market. While Ernst and Fischer might not have experienced firsthand what Congress did to the co-ops, and while Sasse seems to have fallen prey to talking points that are inapplicable to CoOportunity, Senator Grassley knows—or should know—how much Congress hobbled the cooperative serving his state. He should ask CMS to explain itself, but he might also direct his letter at Congress, the Senate Finance Committee, and the House Ways and Means Committee as well.—Rick Cohen