Managers of Kentucky Health Cooperative Inc., a nonprofit, member-owned health insurer based in Louisville, say the company will shut down at the end of the year.
Organizers used $146 million in loans from the Consumer Operated and Oriented Plan (CO-OP) program, a Patient Protection and Affordable Care Act (PPACA) program, to start the insurer.
The U.S. Department of Health and Human Services (HHS) announced last week that another new PPACA program, the risk corridors program, may be able to provide less than 13 percent of the payments the program was supposed to send health insurers for 2014.
PPACA calls for the risk corridors program to use cash from PPACA exchange plan issuers that do well in 2014, 2015 and 2016 to help exchange plan issuers that do poorly during those years.
The risk corridors program shortfall means the Kentucky CO-OP may get just $9.7 million of the $77 million in risk corridors payments it was hoping to collect, according to Glenn Jennings, the company’s chief executive officer.
Jennings said in a statement that the risk corridors announcement forced the board to start the process of shutting the company down.
“In plainest language, things have come up short of where they need to be,” Jennings said.
But the company is continuing to meet its financial obligations, Jennings said.
The CO-OP that served Iowa and Nebraska closed in late 2014. In the past few months, CO-OPs in Louisiana, Nevada and New York have announced plans to shut down in December. In each case, CO-OP managers and state insurance regulators have cited uncertainty about risk corridors program payments as a reason for concern.
Kentucky CO-OP managers began with a goal of attracting 30,000 enrollees. They ended the first open enrollment period with about 57,000 enrollees, or about the three-quarters of the people who bought PPACA exchange plan coverage in Kentucky in 2014.
Many of the new enrollees had been uninsured, and their claim costs were high. The company lost about $50 million in 2014.
This year, the company’s enrollment fell to 51,000.
The company cut its first-half loss to about $4 million. Managers thought the company could start turning a profit next year, if the risk corridors money had come through, Jennings said.
Kelly Crowe, chief executive officer of the National Alliance of State Health CO-OPs (NASHCO), the CO-OPs’ trade group, said the shutdown of the Kentucky CO-OP is further evidence that the PPACA “three R’s” insurer risk-management programs — the risk corridors program, a reinsurance program and a risk-adjustment program — are not working as PPACA drafters had hoped.
“Regulatory obstacles have made it virtually impossible for the state health CO-OPs to raise additional capital to support growth, which would potentially offset the shortfall in the obligations of the federal government,” Crowe said.