Another Obamacare Co-Op Shuts Down, Amassing More Than 50 Percent Failure Rate

Consumers Mutual Insurance of Michigan has announced it will be winding down its operation prior to 2016, making it the twelfth Obamacare co-op to fail this year.

An FAQ on the insurer’s website reads, “[You] will need to purchase health insurance from another company prior to December 15, 2015 in order to have coverage on January 1, 2016.” Consumers are also told that, as long as they continue to pay their premiums, the co-op will handle their claims through the end of the year.

The closure of Consumers Mutual represents a grim milestone for the Obamacare co-ops, as more than half of the 23 original co-ops have now failed. Previous closures include the co-ops in Arizona, Utah, South Carolina, Colorado, Iowa/Nebraska, Louisiana, New York, Nevada, Tennessee, Oregon, and Kentucky.

The Obamacare co-ops are non-profit insurers created to offer lower cost options to consumers on the exchange. Their rates were often among the lowest in a given state. However, those low rates turned out to be a problem when enrollment did not meet expectations or when healthcare claims exceeded expectations. An Inspector General’s report published this summer found that 22 of the 23 co-ops lost money in 2014. Nineteen had claims that exceeded premiums.

No statement about the closure has, so far, been released by the Michigan Department of Insurance and Financial Services. Several of the co-ops that have failed in the last month cited an announcement by the Centers for Medicare and Medicaid Services (CMS) on October 1 that it would only pay 12.6% of requests made under the so-called risk corridors program.

Risk corridors is a pool of money which insurers who earn more than anticipated pay into so that those who earn less than needed to cover expenses can draw from it. In 2014, only $362 million was paid into the pool, and $2.87 billion was requested from it. Because HHS is prevented by law from supplementing the pool with additional funds, it could only pay out 12.6% of claims.