The CMS has awarded more than $300 million in “solvency funding” in recent months to a half-dozen not-for-profit insurers that were established under the Patient Protection and Affordable Care Act.
That includes roughly $130 million to consumer-governed health plans that dominated the marketplaces in Kentucky and Maine during the first open-enrollment period. The other beneficiaries were co-op plans operating in New York ($90.7 million), Wisconsin ($51.2 million), Connecticut ($48.4 million) and Iowa and Nebraska ($32.7 million).
The 23 startup insurers have received a total of roughly $2.5 billion in loans under the federal healthcare law. Almost all the loans are supposed to be paid back over 15 years. According to multiple co-op officials, they've been told that this was the last round of available funding from the federal government.
The not-for-profit plans were included in the ACA in part to placate liberals who were upset that no public-option plan was part of the legislation. Republicans have blasted the startup insurers as a wasteful government intervention in the marketplace.
The co-op plans are required by the CMS to maintain at least 500% of risk-based capital. That's the minimum amount an insurer needs to supports its business operations.
Kentucky Health Cooperative captured nearly 80% of private plan customers during the first year of exchange operations. Similarly, 83% of shoppers in Maine opted for a plan from Maine Community Health Options. They each received roughly $65 million in solvency funding.
Maine's co-op expanded into New Hampshire this year. Kentucky Health Cooperative initially planned to expand into West Virginia, but pulled out of that market just before the start of the open-enrollment period. The insurer still plans to compete in West Virginia for 2016 customers.
Senate Majority Leader Mitch McConnell, who represents Kentucky, blasted the latest loan to the Kentucky insurer, which wasn't made public until last week. "If Obamacare were really such a success story in Kentucky, why did this co-op need a taxpayer bailout?" McConnell asked, according to the Associated Press, which first reported the loan. "Even more disconcerting, why was that bailout kept a secret from the very people who were about to enroll in it?"
But Janie Miller, CEO of Kentucky Health Cooperative, indicated that the need for additional dollars is normal for a startup insurer in an uncertain environment. “First-year enrollment was almost double the amount anticipated resulting in the need for additional solvency funding,” Miller said in a statement. “The co-op program was built understanding that it would take two or three years before a co-op would be in a position to get to a steady state and begin to achieve the financial operating results/performance that would allow them to start repaying the federal loans.”
Kevin Lewis, CEO of Maine Community Health Options, also noted that enrollments were more than twice as high as anticipated and that the need for additional capital shouldn't be seen as any kind of sign that the fledgling insurer is in financial trouble. “As new entrants to the market without a broad base to absorb any kind of crazy year they just want to make sure there's plenty of reserves,” Lewis said. “Over time, we're going to be replacing those loans with our own reserves.”
HealthyCT received $48.4 million in solvency funding in September. Unlike co-ops in Maine and Kentucky, the startup insurer captured only 3% of market share on Connecticut's exchange during the first open-enrollment period, said Ken Lalime, the co-op's CEO. In response, the fledgling insurer dropped premiums by an average of 8% for 2015. So far during the current open-enrollment period, 20% of exchange customers are choosing one of HealthyCT's plans.
“We all want to have additional members. That obviously brings in additional dollars,” Lalime said. “It's this balance of member growth and solvency that makes organizations continue to thrive.”
Follow Paul Demko on Twitter: @MHpdemko