The New York Times published a barn-burner editorial Tuesday, which blames Republicans for the recent collapse of several Obamacare co-ops. In fact, the collapse has more to do with poor management.
The editorial opens with a recounting of recent history which is simply wrong [emphasis added]:
The nonprofit plans, known as health insurance cooperatives, were created as a weak, underfunded alternative to a much stronger option that the Republicans blocked from passage. Back in 2009, while the reform law was being debated in Congress, most Democrats were pushing for a so-called public option, a government-run plan that consumers could choose as an alternative to private insurance… When it became clear that no public plan could survive a Republican filibuster, Senator Kent Conrad, a North Dakota Democrat, proposed setting up these cooperatives to compete with the profit-making plans.
The whole premise of the editorial is that we only got the shaky co-ops because Republican threatened to filibuster the public option. In fact, it was Joe Lieberman who threatened to vote against the bill if the public option was included. From Politico, October 2009:
Lieberman, who caucuses with Democrats and is positioning himself as a fiscal hawk on the issue, said he opposes any health care bill that includes a government-run insurance program — even if it includes a provision allowing states to opt out of the program, as Reid has said the Senate bill will.
Lieberman’s reasons for opposing the public option are perhaps the least examined part of the entire story of health reform, but for our purposes, it’s enough to note that Republicans didn’t kill the public option, an independent who caucused with Democrats did.
The Times points out that co-ops in “Colorado, Iowa, Kentucky, Louisiana, New York, Nevada, Tennessee and Oregon” have closed. Here is the paper’s explanation of why:
Their problems have been attributed to wrong estimates for how many people might enroll and to setting premiums too low to cover the cost of care, as well as severe reductions in the amount of money available to the co-ops from federal loans and for risk adjustment payments, both the result of Republican opposition to supporting the plans.
First of all, the Times makes it sound as if poor business is just a minor part of the problem with the co-ops. In fact, as this Forbes piece on the collapse of Health Republic Insurance in New York points out, the co-op’s premium estimates were disastrously far off from reality.
Health Republic reported total premiums (including federal premium tax credits) of $921 million, total medical costs of $1,032 million, and claim adjustment and general administrative expenses of $201 million, producing an underwriting loss of $312 million—despite insuring a healthier than average population based on diagnoses reflected in the risk adjustment program. That underwriting loss is equivalent to 34% of the $921 million in premiums, or an average of $125 per enrollee per month of operation compared with an average monthly premium of $369.
Leaving aside the too-low premiums, the Times alleges two other problems which it attributes to Republicans. First, it claims “severe reductions” in federal loans. But the Washington Post reported in 2013 that initial estimates by industry experts said co-ops would require $10 billion in grants for start-up funding. Democrat Ben Nelson, in consultation with the insurance industry, insisted that the co-ops receive loans rather than grants. The bill that eventually passed also cut the amount of the loans from $10 billion to $6 billion.
The Post also reported that officials at the White House were never confident the co-ops could succeed, “Some senior White House officials considered the co-ops risky, including for prospective policyholders, and questioned whether the loans would be repaid, said multiple people familiar with their thinking.” The result was that the White House offered up significant cuts to the program during 2011 budget negotiations.
The second claim made by the Times is that Republicans opposed risk adjustment payments. That’s true in the sense that Republicans opposed dumping taxpayer money into a pool of money used to bail out insurers. The risk corridors program required insurers who collected more in premiums than expected to pay into a pool of money which was then divided among insurers who lost more than expected. In 2014, Republicans made risk corridors budget neutral by limiting the amount of money HHS could dole out to whatever was paid in by insurers and no more.
Earlier this month, the Centers for Medicare and Medicaid Services announced it could only cover 12.5 percent of the losses claimed by insurers. Why only 12.5 percent? Because that’s exactly how much was paid into the program by insurers. Modern Healhcare reported, “In 2014, insurers paid $362 million into the program, but they also requested $2.87 billion in payments to cover their losses.” Put another way, insurers’ unexpected losses were about 8 times their unexpected gains.
That’s prima facie evidence that premiums on the exchanges are too low, but the White House, for political reasons, doesn’t want insurers to make the needed premium increases. Just a few months ago, the White House urged state insurance commissioners to hold down requested rate increases for 2015. From the NY Times:
Administration officials have political and financial reasons for wanting to hold down premiums. Big rate increases could undermine public support for the health care law, provide ammunition to Republican critics of the measure and increase costs for some consumers and the federal government.
One of the arguments made for holding down rates was that the soon-to-increase individual mandate would “motivate a new segment of uninsured who may not have a high need for health care to enroll for coverage.” Insurance commissioners must have been surprised when HHS recently revealed their low expectations for overall enrollment next year.
As a post script, it’s worth noting that one of the companies whose 2015 rate requests were held down in keeping with the White House’s urging was Health Republic Insurance, the recently closed NY co-op. Forbes reports Health Republic, “applied for an average individual market rate increase of 15.4%. New York regulators approved 13%. It requested a 5.9% increase for small groups; regulators approved 3.4%.”
Obviously, the rate increases would have been too little, too late for the co-op, but it points to a shell game being played by Democrats. The White House wanted rate increases to be low because they were public and potentially explosive in the media. Meanwhile, it supported a behind-the-scene bailout program most Americans have never heard of that would have amounted to a multi-billion-dollar federal handout to insurers this year alone.
If the NY Times wants to propose spending billions to bail out insurance company losses, it should write an editorial making that case and test the public’s appetite for such spending. Instead, the Times is blaming Republicans for spoiling the Democrats’ cynical and partisan hide-the-funding shell game.
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