Many co-ops (a new type of nonprofit health insurer created by the ACA and designed to offer individuals and small businesses more affordable, consumer-friendly and high-quality health insurance options) are closing or planning to close in several states. As a result, it appears (according to reports) that millions of physician claims are going unpaid. The only way these co-ops could survive so they could pay outstanding physician claims would be for Congress to allocate additional monies to cover these losses. This action by Congress does not seem to be likely.
The following states’ co-ops have either closed or are in the planning stages to close. If you work in one of these states, you should be careful when you accept a co-op because your claims may not be paid:
- New York
- South Carolina
It is unclear at this time if Arizona, Hawaii and Michigan are also in this group.
Why did this happen?
The Affordable Care Act (ACA) requires insurance companies and the co-ops that participate in the health insurance exchange to return a portion of their profits to the federal government when the amount of their profit is “excessive.” This money is put into a federal pool and is available to reimburse other health plans that cost more money than the federal government deems appropriate. This back and forth transfer of money is referred to as a Risk Corridor. By law, the payments are to be “revenue neutral,” meaning that the amount paid out to the unprofitable plans cannot exceed the amount of money paid into the pool by profitable insurance companies.
Unfortunately (for the carriers), much more money was lost (approximately $2.7 billion) than was made as profit (approximately $300 million). The fact that this had to be revenue neutral created a problem for the government. Many of the large insurance carriers have the financial reserves to allow them to cover these losses because they have established cash reserves from decades of operation. However, the co-ops were much too young to have these types of reserves available to cover their losses. This led many state insurance commissioners to force nearly half of the co-ops to go out of business due to lack of necessary financial reserves.
The administration is looking for ways to loosen the rules on how co-ops can bring in money and possibly lower the risk-based capital requirements as a way of improving solvency. This flexibility could help avoid more closures. In the meantime, we suggest you carefully monitor the situation in your state.