Fannie Med Implodes
December 29 | Posted by mrossol | ObamaCareDec. 28, 2014 7:19 p.m.
Liberals claim ObamaCare is “working,” whatever that means, but the reality is that the law is seeding the insurance markets with land mines that will explode over time. The sudden detonation of a taxpayer-backed insurer in Iowa and Nebraska is an early warning.
Last week the Iowa Attorney General and insurance commissioner forced a nonprofit insurance start-up called CoOportunity Health into “rehabilitation,” akin to receivership in bankruptcy. The company received some $146 million in low-interest loans and grants from the Health and Human Services Department, but after fewer than two years in operation it is now in “financially hazardous condition” and pointed inexorably toward insolvency, according to the filing. Call it the Solyndra of ObamaCare.
The insurance commissioner will take over management of operations and attempt a financial turnaround, but the next legal step is liquidation. Iowa and Nebraska officials banned CoOportunity from participating on the ObamaCare exchanges and are encouraging the company’s 96,350 consumers to switch insurers.
The critics predicted as much years ago (see “Fannie Med,” June 6, 2012). CoOportunity was among the insurance co-ops financed by the Affordable Care Act, much like credit unions or the rural electricity and feed-and-seed collectives of the Depression era. To placate progressives angered by the lack of a government-run “public option,” the law converted HHS into a venture capital investor, and the bureaucracy pumped $1.9 billion into two dozen outfits that now cover about 450,000 Americans.
The co-ops were supposed to compete with normal private insurance, but as it happens the amateurs who run them can’t attract private financing. Perhaps the lack of accountability to shareholders and capital markets explains why they are starting to fail, though their complete dependence on government subsidies introduced other distortions.
In particular, the co-ops have tended to deliberately underprice their policies. A McKinsey report in October observed that the co-ops “emerged as price leaders” and offer about a third of the lowest-cost plans on the exchanges. Normal insurers have been complaining about “irrational” co-op rates and even withdrawing from markets where such artificially cheap plans are sold.
Yet the rational calculation is to game ObamaCare’s rules to undercut competitors and capture market share. If premiums don’t cover claims, the deficit can be absorbed by ObamaCare’s reinsurance and risk corridor and adjustment programs that are supposed to provide a safety net against major insurer losses.
But CoOpportunity flew too close to the sun. The company’s reserves fell 66% between January and October, and then cash on hand and assets plunged to $17.2 million in December from $47 million in October as costs swamped premium revenue. A $125.6 million payout from reinsurance can’t legally be made until late next year. CoOpportunity asked HHS for an emergency bailout, which was denied in mid-December as the result of restrictions on co-op and reinsurance financing that Congress passed over the last two years.
The recklessness of CoOpportunity and its federal enablers is unfortunately now mundane. There will be more such failures in the years ahead.
via Fannie Med Implodes – WSJ.
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