Research & Commentary: Affordable Care Act CO-Ops Are Failing

Published September 1, 2015

In an effort to improve competition in the health care insurance marketplace and on the new health insurance exchanges, the Affordable Care Act (ACA) established a program to assist in the creation of new private nonprofit health insurers, known as Consumer Oriented and Operated Plans (CO-OP). The ACA CO-OP program’s goal is to offer low-interest loans to groups to maintain their newly created health plans. 

CO-OPs are nonprofit health insurers directed by their consumers and designed to offer individuals and small businesses affordable health insurance products. 

The first CO-OPs were established at the beginning of 2014 and were included in the state healthcare exchanges. CO-OPs are able to operate across multiple local areas throughout a state and even across state lines. These CO-OPs are required to obtain a license in each state in which they operate and are subject to the same state laws and regulations as other health insurance companies. 

CO-OPs receive a substantial subsidy from the federal government in the form of loans; the ACA provided for a one-time $3.8 billion appropriation to support these loans. The CO-OP program allows nonprofit organizations to apply for two kinds of low-interest loans: start-up loans to help the company set up a CO-OP and solvency loans to help the CO-OPs meet state reserve regulations. The start-up loans must be repaid within five years, and solvency loans must be repaid in 15 years. The New York Times reports CO-OPs have received $2.4 billion in federal loans for start-up costs and solvency assistance. 

In an effort to add transparency to the CO-OP program and prevent waste and abuse, the ACA requires strict auditing and monitoring. The recent results from these audits have not been positive. The New York Times reported an internal government audit found the vast majority of the CO-OPs created under the ACA were losing money and could have great difficulty repaying their loans. The Times story quotes Daniel R. Levinson, the inspector general at the Department of Health and Human Services (HHS), who found 22 of the 23 CO-OPs lost money in 2014. 

Devon Herrick of the National Center for Policy Analysis (NCPA) says many of the CO-OPs have already begun borrowing additional money to stay afloat. Herrick found HHS had provided six state CO-OPs with $355 million in emergency solvency funding by September 2014. 

The main issue is spending, says Herrick in an NCPA Issue Brief. “For every $100 in premiums, the CO-OPs spent about $117, on average. While some of the CO-OPs are losing money because of their small size, others appear to have pursued the strategy of losing money to gain market share at taxpayers’ expense.” 

State legislators should keep a close eye on their CO-OPs and avoid investing more taxpayer dollars in CO-OP programs that have not generated positive results. Herrick cautions state insurance regulators and other regulators to be on the watch for CO-OPs that employ strategic plans that are designed to lose money in an attempt to gain market share, all while expecting a bailout when things go horribly wrong. 

The following documents provide additional information about CO-OPs and health care reform.

Ten Principles of Health Care Policy
This pamphlet in The Heartland Institute’s Legislative Principles series describes the proper role of government in financing and delivering health care and provides reform suggestions to remedy current health care policy problems. 

Most Health Insurance Co-ops Are Losing Money, Federal Audit Finds
Robert Pear reports in The New York Times on an internal government audit that found most federal insurance cooperatives created under the Affordable Care Act are losing money and could have difficulty repaying millions of dollars in federal loans. 

Obamacare Health Insurance COOPs Are Unraveling
Devon Herrick of the National Center for Policy Analysis examines how Consumer Operated and Oriented Plans are slipping into insolvency. All but one lost money in 2014, and one failed spectacularly, which by itself forced about 20 percent of all CO-OP enrollees to shop for another plan. Worse yet, many CO-OPs appear to be setting artificially low premiums to gain market share, in the process losing money taxpayers are expected to cover. 

ObamaCare Co-ops: Cause Célèbre or Costly Conundrum?
Grace-Marie Turner of the Galen Institute takes a deeper look at CO-OPs in Iowa, Kentucky, Tennessee, and other states, revealing their precarious financial condition. Turner says CO-OPs are trying different tactics to outrun their losses, but the maneuvers resemble a family in financial trouble taking out additional credit cards to pay daily bills. The idealistic CO-OP experiment is not turning out as supporters had hoped, Turner writes. 

Obamacare Co-Ops Try to Swim—Not Sink—As Red Ink Persists
CNBC’s Dan Mangan says some Obamacare CO-OPs, which are supposed to help more Americans receive health insurance, may need financial medicine of their own. “Before last Friday’s failure of a Midwest-based co-op, a new analysis of the Obamacare co-ops detailed the losses that were booked by all but one of the two dozen nonprofit insurers through the third quarter of 2014.” 

The Obamacare Evaluation Project: Access to Care and the Physician Shortage
Analyzing changes in access to primary care physicians under the Affordable Care Act, Paul Howard and Yevgeniy Feyman of the Manhattan Institute find population growth, demographic changes, and an expansion of insurance spurred by Obamacare will contribute to a significant shortage in primary care physicians over the coming decade. 

Obamacare’s Impact on Doctors—An Update
In this Heritage Foundation Issue Brief, Alyene Senger outlines several effects of Obamacare on doctors: “Specifically, physicians will be subject to more government regulation and oversight, and will be increasingly dependent on unreliable government reimbursement for medical services. Doctors, already under tremendous pressure, will only see their jobs become more difficult.” 

Studies Show: Medicaid Patients Have Worse Access and Outcomes than the Privately Insured
In this Heritage Foundation Backgrounder, Kevin Dayaratna states it is becoming increasingly difficult for Medicaid patients to find access to primary and specialty care physicians. When Medicaid patients are admitted to hospitals, they often arrive with more serious conditions than those with private insurance. By expanding this broken program, Obamacare will only exacerbate the problem. Policymakers should reform Medicaid to allow recipients access to private insurance in a consumer-driven market, Dayaratna writes. 

Impact of Medicaid Expansion on Hospitals: Updated for Second Quarter 2014
The Colorado Hospital Association found emergency room visits increased three times as rapidly in states that expanded Medicaid under Obamacare than in those that did not. 

Doctors Say ER Visits Continue to Climb, Despite Obamacare Promises
Writing for Somewhat Reasonable, Marketing Manager Gene Koprowski discusses a poll of physicians indicating emergency room visits by indigent patients are rising in the United States five years after Obamacare legislation was passed partially on the promise to reduce those numbers.

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Health Care News at, The Heartland Institute’s website at, and PolicyBot, Heartland’s free online research database at

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