WASHINGTON (AP) — More than half of the health care law's nonprofit insurance co-ops are closing, the Obama administration said Tuesday even as it defended the troubled alternative to mega-insurers.
Mandy Cohen, a senior official with the Health and Human Services Department, told lawmakers at a hearing that 12 of the nonprofit co-ops will not be selling health law coverage next year. There were 23 co-ops before a cascade of solvency concerns prompted action from state regulators.
Republicans and Democrats on the House Ways and Means Committee traded blame for the mess, which is forcing several hundred thousand people to find new coverage for 2016.
Republicans said the taxpayer-financed program exemplifies the problems of "crony capitalism" in which the government backs certain businesses for political purposes. Democrats countered that deep funding cuts forced by the GOP worsened the problems and contributed to the financial instability of many co-ops.
The argument at Tuesday's hearing before the House Ways and Means Committee was the administration's most direct response to a wave of co-ops closing this fall. Michigan's is the latest to announce it will not be offering health law coverage next year.
State insurance regulators appear to be moving proactively to avoid serious disruptions for consumers by winnowing out plans that could fail in 2016. Most customers affected have been able to keep their co-op plans through the end of this year, but must find new coverage beyond that.
"Only in Washington would a group of bureaucrats think they knew how to micromanage 'competition' instead of letting consumers and markets do what they do best," said Rep. Kevin Brady, R-Texas, who chairs the health subcommittee.
The formal name of the program is Consumer Operated and Oriented Plan. The federal government provided $2.4 billion in loans to get the co-ops going, and repayment from the ones that have failed seems doubtful.
Nevertheless, Cohen told lawmakers that co-ops have played an important role in fostering competition and choice in the law's health insurance markets, now in their third year.
"There have been successful co-ops which have provided consumers in their states an additional choice of health insurance and have improved competition," Cohen said. "And there also have been co-ops that for a number of reasons have faced compliance, technical, operational, or financial difficulties." Cohen is chief operating officer at the Centers for Medicare and Medicaid Services, which oversees government health insurance programs.
Cohen noted that President Barack Obama's health care law had originally provided much more money for the program — $6 billion — but that Congress took away most of that.
Republicans said the program was flawed from the start and spending more money on it would have been a waste. "A lot of us feel like this is throwing good money after bad," said Rep. Peter Roskam, R-Ill.
Democrats accused Republicans of hypocrisy. "This is not a problem with the co-ops," said Rep. Jim McDermott, D-Wash. "It is a direct consequence of Republican sabotage."
The National Association of Insurance Commissioners, which represents state regulators, says there's no single reason why so many co-ops failed. Among the factors: co-ops were new companies, taking on patients they did not know and operating in a very competitive marketplace.
NAIC says the closings may have peaked, since state regulators were anxious to get weak co-ops off the market before the start of the health care law's sign-up season on Nov. 1. The group says some co-ops may yet succeed.
The co-ops were the health care law's alternative to corporate insurers. After congressional Democrats were unable to pass a government plan to compete against insurers, the fallback option became nonprofit co-ops. The administration says it ran a rigorous screening process, sifting through nearly 150 applicants.
As recently as spring, the White House touted co-ops as an accomplishment.
But a report this summer from the inspector general of the Health and Human Services department found that the co-ops were awash in red ink. The reasons included higher-than-expected enrollment of people with expensive health problems, lower-than-expected enrollment of younger people, and inaccurate pricing of coverage.
Only one co-op, the one in Maine, made money last year.