One of the most ambitious efforts to replicate real-world competition in the Affordable Care Act has proven to be a growing failure. In an attempt to increase competition in the healthcare market and on the new health insurance exchanges, ACA established a program to assist in the creation of new private nonprofit health insurers, known as consumer oriented and operated plans.
CO-OPs are nonprofit health insurers directed by their consumers and designed to offer both individuals and small businesses affordable health insurance products. The ACA CO-OP program is designed to offer CO-OPs low-interest loans to help maintain the new healthcare plans. The first CO-OPs were launched at the beginning of 2014 and offered in the ACA healthcare exchanges.
CO-OPs are allowed to operate across multiple areas locally, across a state and even across state lines, which conventional health insurance providers are prohibited from doing. CO-OPs are required to obtain a license in each state in which they operate and are subject to all the state laws and regulations applying to other health insurance companies.
Many CO-OPs have already failed, with several more already borrowing additional money to stay afloat. The Kentucky Health Cooperative is the most recent healthcare CO-OP to fail. The National Center for Policy Analysis found the U.S. Department of Health and Human Services had provided six state CO-OPs with $355 million in emergency solvency funding as of September 2014.
CO-OPs already receive a substantial subsidy from the federal government in the form of loans, with the ACA having provided for a one-time $3.8 billion appropriation to support them. The New York Times notes CO-OPs have received $2.4 billion in federal loans to meet start-up costs and solvency requirements.
Devon Herrick, a senior fellow at NCPA, says excessive spending is a major problem. He found the CO-OPs spent $117 on average for every $100 in premiums in an attempt to sacrifice profits temporarily in order to grab a greater share of the market. The Daily Caller recently found one-third of the Obamacare health insurance CO-OPs have now failed. These failures have left almost 400,000 policyholders in 10 states rushing to find new coverage for 2016. The CO-OPs provided health insurance primarily for low-income customers.
These failures should not surprise anybody. The law imposes strict auditing and monitoring requirements on the program that aim to prevent waste and abuse and provide transparency. The recent results from these audits have been anything but positive. The New York Times reported in August that an internal government audit found the vast majority of CO-OPs were losing money and could have great difficulty repaying their loans. The Times quoted HHS Inspector General Daniel R. Levinson as saying 22 of the 23 CO-OPs lost money in 2014.
State legislators should keep a close eye on the CO-OPs in their state and avoid investing more taxpayer dollars in these programs, which have not generated positive results and have engaged in unwise financial practices. It is important for state regulators to ensure the CO-OPs are not engaging in activities that waste taxpayer dollars and can lead to calls for a bailout on top of all the money already wasted.