The state’s largest insurer of individual health plans is suing the federal government for over $20 million in owed payments.
The lawsuit, by Maine Community Health Options, or MCHO, marks the latest development in the ongoing struggle of Obamacare health co-ops, many of which have already shuttered because of financial woes.
It has been a rough year for MCHO. The nonprofit was one of nearly two dozen health care co-ops setup nationwide in 2014 and funded through the Affordable Care Act, or Obamacare, with over $2 billion in federal grants.
The co-ops were constructed as an alternative to commercial insurance. The priority is to write affordable health plans and provide coverage — generating profits is a secondary goal.
But health insurance is risky business. Despite a successful first year in which it posted a net income of $7.3 million, the Maine co-op showed a net loss of $74 million last year. Now the organization, which writes insurance plans for over 75,000 Mainers and once was held up as one of the few co-op success stories, is joining other insurers in suing the federal government for nonpayment of money that was designed to cover big losses in the marketplace.
“It’s what we feel like we need to do, what we have to do on behalf of our members,” says MCHO President Kevin Lewis. “Certainly the capital would be very helpful.”
Lewis says the organization is solvent, cutting costs and working its way out of the deficit. He says the effort would be made easier if the federal government would pay the nearly $23 million it owes MCHO through what’s called the risk corridor program.
The program is modeled after the Medicare Part D. It’s designed to entice typically risk-averse insurers to write plans for people whose health and medical history is unknown. Many of the new recipients were uninsured.
“This new market was bit of an unknown for them,” says Timothy Jost, professor emeritus at the Washington and Lee University School of Law.
Jost says the ACA provided insurers like MCHO with a government-backed safety net.
“It would recover excess profits from insurers who did very well and it would pay out to those who lost money on the program,” he says.
In 2014 MCHO was one of the few insurers that accumulated profits to pay into the program. But by the following year, enrollment through MCHO products soared, and so did utilization of insurance.
Lewis says the company didn’t want to jack up premiums for its members, and it miscalculated just how often the newly insured would use their coverage. That led to the big losses last year, he says.
Those losses are supposed to be protected by the risk corridor program in the ACA.
“It was really meant to kind of provide these guardrails on either side for the first three years of the program,” Lewis says.
But as insurers accumulated losses, the federal government slowed risk corridor payments to a trickle. That’s because Congress restricted the amount of money the U.S. Department of Health and Human Services can pay insurers like MCHO when it passed a spending bill in 2014.
That year, insurers claimed nearly $2.9 billion through the risk corridor program. The feds paid just over $360 million, less than 13 percent of the claims.
Now, all but seven of the 23 co-ops have shuttered. The others like MCHO, as well as big commercial insurers, are suing the feds for the risk corridor money. A class action suit has been filed in the federal appeals court.
Lewis says MCHO is going it alone for now. He wouldn’t rule out a future joint lawsuit.
Jost thinks the insurers like MCHO have a strong case.
“I and many other observers think they have a pretty good claim. The government is supposed to pay its debts and can’t simply decide not do that,” he says.
MCHO filed its claim in the U.S. Court of Federal Claims on Tuesday. Lewis said he wasn’t certain how long it would take to get a ruling.
