It's far from proven that nonprofit health insurance co-ops can't work. But there are clearly some big barriers that make it hard for them to succeed, despite $3.4 billion in federal financing through the Patient Protection and Affordable Care Act.
The Washington Post reports that nearly a third of health co-ops created to offer plans on the PPACA marketplaces will be gone by the end of 2015.
The most recent announced failures come from Colorado, Kentucky, Tennessee and Oregon, where three nonprofit insurance co-ops are slated to shutter in the coming months because their revenue can't cover the cost of claims.
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Not all of the co-ops report the same issues and not all of them chose to shut down on their own.
Health Republic, based in Oregon, blamed the closure on what it called unfair reimbursement as part of the federal government's "risk corridor" plan, which was designed to encourage marketplace insurers to keep prices low by partially reimbursing them when claims outpaced premiums.
But the federal government announced earlier this month that insurers would only get 12.6 percent of the money they had requested to cover claims that exceeded premiums. According to Health Republic CEO Dawn Bonder, the decision was nothing short of betrayal.
"The government's refusal to honor its risk corridor obligations represents a negative financial impact of over $20 million," she said in a statement last week. "This has placed us in a difficult financial position that could jeopardize our members and partners. As a result, we believe the most ethical step is for Health Republic to refrain from entering the market in 2016 and begin an orderly wind down of business."
What led to the closure of Colorado HealthOP was similar, but the call was made by the state — not the co-op leaders — after it discovered the insurer would only receive about $2 million of the $16 million in reimbursement it had sought from the feds.
HealthOP CEO Julia Hutchins said the group was shocked by the state's decision, calling it "irresponsible and premature." She claimed the insurer was on track to be profitable in 2016.
In Tennessee, it was again the state that made the call to force the co-op's closure after repeated warnings from the Centers for Medicare and Medicaid Services that the insurer was financially unstable.
The news is not all bad, however. A particularly successful example comes from Arizona, whose only nonprofit co-op, Meritus, reported skyrocketing enrollment this summer after facing a dire shortage of members last year.
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