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Articles by John Hoff

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ObamaCare Co-ops: Cause Célèbre or Costly Conundrum? October 8, 2015

By Grace-Marie Turner and Thomas P. Miller

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The Affordable Care Act created a new kind of “cooperative” health insurance arrangement heralded by supporters of health reform.  The co-ops were founded on the idealistic belief that community members could band together to create health insurance companies that would be member-driven, service-oriented, and would not have to answer to shareholders or turn a profit.

But the 23 co-ops that were created had significant start-up costs, no experiential data upon which to set premiums, generally had to pay extra to lease physician and hospital networks, and had few people in the companies and none on their boards with insurance experience.

The idealism has quickly faded.  After receiving hundreds of millions of dollars in government start-up loans, most co-ops are surviving now on what remains of more than $2 billion in federal “solvency loans” and on the promise of future “shared risk” payments that are likely to produce only a fraction of the revenue co-ops have booked.

Standard & Poor’s observed that becoming a co-op “can be like learning to ride a bike without training wheels.”  Some co-ops launched with premium prices far below their competitors, gaining a significant market share, but they quickly saw their medical costs far outpace their premium revenue and reserves.

Others started more slowly with little enrollment, only to try to jump ahead of competitors with lower premiums in the second year.  The average premiums for co-op plans were lower than those for other issuers in more than half of the rating areas for states in which they participated in 2014, according to the Government Accountability Office.[i]

The lower premiums did attract new customers, but the co-ops now are burning through inadequate premium revenue and dwindling amounts of unspent loan funds to pay medical claims.

This paper will take a deeper look at co-ops in Iowa, Kentucky, Tennessee, and other states that reveal their precarious financial condition.

Iowa’s CoOportunity Health shows the peril.  The co-op set off alarm bells when it was liquidated in January 2015, forcing 120,000 people to find new sources for health insurance.  But this is not an isolated example of serious problems with this experiment.  Co-ops in 10 other states had even worse loss ratios in the third quarter of 2014 than Iowa did, regulatory filings show.

The Kentucky Health Cooperative deserves special attention because it has the second highest enrollment of any of the remaining co-ops.  Until recently, Kentucky had been considered one of the more successful co-ops, capturing 75% of enrollees in state-run health insurance exchange enrollment. But there are disturbing similarities between its numbers and the failed Iowa co-op.

Kentucky has been awarded $146.5 million in taxpayer loans, including $65 million in solvency funding in November of 2014.  Most of these funds have been exhausted, and now the co-op is banking on risk corridor payments.

It would be considered insolvent if not for an additional receivable of $76 million in risk-corridor payments it expects this summer to maintain a semblance of solvency. The availability of further solvency loan funding has all but disappeared, and the risk corridor program payments are expected to shrink for 2015 and then disappear after the 2016 exchange plan year.

Kentucky’s co-op posted a “medical loss” ratio of 158 percent for 2014 – for every premium dollar it collected, it spent that dollar and an additional 58 cents on the cost of claims.  The co-op now has even less of a margin for error after exhausting its existing federal loan allocations.  This sort of performance will not be sustainable for Kentucky or for other co-ops that are similarly challenged.

In Tennessee, the Community Health Alliance co-op went through a boom-bust cycle.  Its enrollment rapidly expanded in the latest enrollment cycle after it offered the lowest premiums in many areas of the state.  But it suddenly had to freeze enrollment in January 2015 after its enrollment surged from just 1% of the market in 2014 to 25% mid-way through 2015 enrollment period.

Regulators grew concerned that the co-op was gaining a larger market share than it could support.  The Tennessee co-op learned that lowering premium prices substantially to expand enrollment only produced larger losses.  Its latest move was to ask regulators to approve an average 23% premium increase for 2016.

As this paper will show, the co-ops are trying different tactics to outrun their losses, but the tactics resemble a family in financial trouble taking out additional credit cards to pay daily bills.  The idealistic co-op experiment is not turning out as supporters had hoped.

Read Full Paper Here

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Congress Holds Oversight Hearing on Failing State Exchanges October 1, 2015

Galen Institute, October 1, 2015

Lackluster enrollment numbers, technology issues, and high maintenance costs are among the challenges plaguing ObamaCare state exchanges that were reviewed by the House Energy and Commerce Oversight Subcommittee at a hearing Tuesday.

“CMS has seemed more focused on doling out taxpayer dollars rather than overseeing how those dollars are spent,” Chairman Tim Murphy (R-PA) said of the lack of oversight.

Executives from six state exchanges—Oregon, Massachusetts, Hawaii, California, Minnesota, and Connecticut—provided testimony. So far, Oregon and Hawaii’s exchanges have both proven to be unsustainable, closing down and migrating consumers to’s federal marketplace with others likely to follow.

Chairman Murphy emphasized in his opening statement the sufficient amount of taxpayer money that was poured into creating these now-failing exchanges: “The Centers for Medicaid and Medicare Services has awarded $5.51 billion dollars to the States to help them establish their exchanges. Let me repeat that. The States received $5.51 billion in federal taxpayer dollars to set up their own exchanges. Yet, the ACA had no specific definition of what a state exchange was supposed to do, or more importantly, what it was not supposed to do.”

Grant money used to fund the exchanges was cut off in 2015 when states were expected to start bringing in enough money to continue operation on their own. Of the 17 states that chose to establish their own exchanges, nearly half face financial difficulties.

The committee hopes to find out why exchanges have struggled to become self-sustaining and whether or not any grant money will be recouped from states where exchanges have been shut down. For instance, Oregon spent $305 million of taxpayer dollars to establish its failed exchange, while Hawaii spent $205 million.

As Americans for Tax Reform points out, Tuesday’s hearing is a vital first step to addressing the urgent problems within the state exchanges—before they spread to all 17.

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Letter to Congress Re: Co-Ops September 11, 2015

By Joel C. White and Grace-Marie Turner

Joel C. White, president of the Council for Affordable Health Coverage, and Grace-Marie Turner, president of the Galen Institute, have written to members of Congress seeking oversight of the Consumer Operated and Oriented Plan (co-op) program. All but one of the 22 co-ops created under the Patient Protection and Affordable Care Act (ACA) have produced negative net income, despite $2.4 billion in federal taxpayer funding. This is a misuse of taxpayer money and a disservice to patients who have lost health insurance coverage due to co-op failure.

View letter.

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Highmark Health Shifts to Narrow Network Plans Due to ObamaCare Costs September 8, 2015

Galen Institute, September 8, 2015

According to a Sept. 3 report by Anna Wilde Mathews of the Wall Street Journal, Pittsburgh-based Highmark Health announced it will cut back its range of plans offered through the ObamaCare marketplaces. The nonprofit company currently covers around 380,000 marketplace enrollees in Pennsylvania, Delaware, and West Virginia. During the first six months of 2015, Highmark recorded a loss of $318 million on individual health plans due to a heavy influx of high-risk patients into the exchanges. Patients with chronic conditions such as diabetes and congestive heart failure were drawn to the broad provider networks and consumed more care than expected. Compared to a loss of $76 million the first six months of 2014, costs have continued to dramatically rise with no sign of stabilizing. As a result, Highmark will shift toward options with narrower provider networks. This is just one way the insurance industry is mitigating the high costs of ObamaCare plans; Highmark is among the many companies that has proposed double-digit rate increases this year.

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Scott Gottlieb: The Coming Health Care Inflation August 7, 2015

By Scott Gottlieb

Forbes, August 6, 2015

In the real economy, medical costs are on a sharp upswing.

It’s becoming clear that a brief slowing in the pace of healthcare spending was transitory – more a result of one-time factors that tamped down on healthcare demand rather than any secular change in how medical care is being delivered.

It’s important to distinguish between three common but different ways that most commentators try and gauge whether healthcare costs are on the rise. Either by measuring increases in total healthcare spending, measuring the cost of providing health insurance, or calculating the rise in prices charged for actual medical care.

All three measures are rising, and all three are, of course, interrelated.

Yet on a relative basis, the increases in actual medical charges seem to be growing more quickly than the cost of insurance, or measures of total health spending. This suggests that the real underlying inflation in healthcare has yet to be fully felt.

On the issue of total healthcare spending, it appears that the slowing in total healthcare outlays was short lived, and probably a consequence of temporary factors.

For one thing, a slack economy that left consumers with less disposable income also discouraged many people from seeking medical care.

More important were sweeping changes in the structure of health insurance. The widespread and rapid adoption of high-deductible health plans, which had high out-of-pocket limits, discouraged people from seeing their doctors. These high-deductible plans were around before the ACA. But Obamacare made these very skinny kinds of health plans politically fashionable, and as a consequence, far more prevalent. Insurance constructs that started in the Obamacare exchanges have rapidly diffused across the commercial market as carriers standardized around these new schemes.
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