Kentucky Health Cooperative received $65 million federal loan before open enrollment began



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LOUISVILLE, Kentucky — A Kentucky nonprofit that is one of the largest insurance providers on the state's health exchange received a $65 million federal loan last month to keep it afloat just days before the second open enrollment period began.

The Kentucky Health Cooperative received the loan from the Centers for Medicare & Medicaid Services on Nov. 10. That was five days before Kentuckians began purchasing private health plans on kynect, the state-run health exchange where qualified individuals can purchase health insurance with the help of a federal discount.

CMS announced the loan this week. It drew sharp criticism from Republican U.S. Sen. Mitch McConnell, who said it "raises serious questions" about the stability of the program.

"If Obamacare were really such a success story in Kentucky, why did this co-op need a taxpayer bailout?" asked McConnell, the incoming Senate Majority Leader. "Even more disconcerting, why was that bailout kept a secret from the very people who were about to enroll in it?"

CMS also awarded a $22 million solvency loan to a Wisconsin co-op on Tuesday. A CMS representative said they waited until all of the loans had been awarded before announcing them.

It is not unusual for nonprofit co-ops to receive so-called "solvency loans" from the federal government. To date, co-ops in seven other states have received more than $355 million in additional solvency loans, according to the CMS website. Co-ops have 15 years to repay the loans, with interest, to the federal government.

The federal Affordable Care Act created a new category of nonprofit health insurers in the hope it would offer consumers more choices. These companies, including the Kentucky Health Cooperative, started last year with the help of federal loans. Their funding was based in part on how many customers they predicted they would have. The Kentucky Health Cooperative predicted it would have about 30,000 customers. Instead, it has 57,000, according to CEO Janie Miller.

"We almost doubled our enrollment," said Miller, a former Kentucky insurance commissioner. "Therefore we needed additional capital sitting there from which we would, of course, pay claims."

State law requires insurance companies to keep a certain amount of cash on hand to pay claims as a way to protect consumers who make those claims. These federal solvency loans are designed to help these new co-ops meet those cash requirements.

"They are a new startup companies. They do not have parent companies, per se, that could push money down to them," said Sharon Clark, Kentucky's Department of Insurance Commissioner. "There were a lot of unknowns. ... So the federal government put several mechanisms in place to try to address any issues like cash flow or to adjust for the risk."

Miller said the loans are not given automatically. They had to compete against other co-ops across the country to receive one last month.

"I think that the investment of the additional $65 million in the co-op would indicate to me that CMS thinks this is a very successful program," she said.

Since kynect's open enrollment period began Nov. 15, more than 9,200 people have used it to purchase a private health insurance plan. Of those, more than 6,000 qualified for a federal discount on their premiums. Another 75,700 people have renewed the private health insurance plan they purchased last year.

Miller said the goal is for the cooperative to eventually become self-sufficient and operate from the money it makes selling insurance.

"These programs recognize that insurance companies, small insurance companies, being introduced into the market would take a number of years to break even and then be able to achieve sufficient operating results to start paying back the loans," Miller said.

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