Why Obamacare Co-Ops Keep Failing

It's been a bad month for the Affordable Care Act.


Credit: White House / Flickr.com

It's been a no good, very bad month for the Affordable Care Act.

One of the nation's top insurance companies has threatened to pull out of the government-run health insurance exchanges, while others are raising rates by double-digits after realizing that people signing up for insurance tend to be older and sicker than originally hoped.

On top of that, enrollment projections are way off.

But perhaps the biggest immediate crisis facing the Obama administration's signature health reform measure is the utter collapse of many of the so-called cooperatives that were set up by states as part of the 2010 law.

The Consumer Operated and Oriented Plan, or Co-Op, portion of the health care law established nonprofit health insurers that would receive federal funding and were intended to compete with private, for-private insurers on the exchanges as a way to lower prices. They were supposed to be small-scale single-payer systems that would be free from the profit motive; a progressive's dream solution to the problem of providing health insurance for all.

Instead, they've turned into a nightmare. So far, 12 of the 23 co-ops have failed, defaulting on more than $1.2 billion in federal loans. Only two have been able to break even so far, and most of the remaining co-ops are eyeing massive premium increases—as high as 40 percent in some cases—to stay solvent.

A government program being poorly run is nothing new, of course. But the co-ops established under the health care law were subject to a series of regulations that make you wonder how they were ever supposed to succeed in the first place.

"It should be no surprise that so many of them are going belly-up," said John Davidson, director of health policy for the Texas Public Policy Foundation, on the latest edition of the Watchdog Podcast. "The rules that they put on these co-ops almost set them up to fail."

For starters, the co-ops were barred from hiring anyone who had served at an executive level at any health insurance company in the country.

Think about that for a second. This was essentially a brand new business venture that was prevented from relying on the expertise of anyone who might have the slightest idea what they were doing.

Another regulation prevented the co-ops from raising any capital aside from what was provided via those federal loans. Other rules prevented the co-ops from being allowed to turn a profit, and if one happened to accidentally make money anyway, it wasn't allowed to use its profits to help it grow.

It's the kind of business plan that would be laughed out of a business school classroom.

"The co-ops were essentially amateur exercises," said Davidson. "Running a health insurance company and keeping it actuarially sound is a difficult thing to do, under the best of circumstances."

Republicans are eager to make the failures of the co-ops look like a major disaster for Democrats who backed the overhaul and particularly for the progressives who pushed for the inclusion of the pseudo-single-payer-programs.

Sure, it's a political nightmare, but it's a real life nightmare too.

Several hundred thousand people—more than 100,000 in New York alone, where the nation's largest co-op is now going under—stand to lose their health insurance as a result of the implosions. Even those who don't lose coverage altogether face the prospect of paying significantly higher premiums.

"There were some hopes and pray­ers as­so­ci­ated with the co-ops that were prob­ably un­real­ist­ic," Larry Levitt, a seni­or vice pres­id­ent at the Kais­er Fam­ily Found­a­tion, told National Journal's Caitlin Owens last week. "The sup­port for the co-ops was as much ideo­lo­gic­al as prag­mat­ic. The way they emerged was so bizarre."

As Owens' detailed piece goes on to explain, there is a long history behind the sudden failure of so many of the co-op programs.

But the rules and regulations written into the text of the law makes it hard to believe there was ever much of a chance for the co-ops to succeed.

This article originally appeared at Watchdog.org.

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  1. I said it when they started opening up: Co-ops are designed to make the average costs look lower than they actually are. And they did that for 18 months. Now that they have to actually break even without federal dollars flowing in the back door, they can’t without being like the rest of the insurance companies.

    So, boom. Crash and burn.

    1. Yea, but Obama will be out of office when the complete shit storm hits…always someone else to blame !

  2. As long as the insurance rates rise faster than government penalties all will be well.

  3. I’m convinced Ayn Rand mastered time travel.

    1. Nah. She grew up in the old Soviet Union in the early days. She saw all this kind of shit first hand.

  4. The other factor not mentioned in the article is the enormous expansion of Medicaid. This was paid for by the Federal government 100% (that’s still paid for by the taxpayer), but then is transitioning to being partially paid for the states.

    Of course, the “experts” in Washington screwed up the numbers and the coming exploding costs:

    From Ohio and watchdog.org: “Ohio’s Medicaid expansion is wildly over budget, but people who rely on the state’s legacy press probably have no idea.”

    Forbes.com: “Obamacare’s Medicaid Enrollment Explosion: A Looming Fiscal Nightmare For States”

    Also watchdog.org: “Situation critical: Obamacare costs set to pummel state budgets”

    Can we stop calling it the Affordable Care Act now?

    1. That states have no one to blame for that then themselves. Everyone warned the states that the “free money” they were getting was the worst of a honey trap. Now the states cannot get out of the deal they made. So they will be forced to either cut services or raise taxes.

    2. An untold Medicaid story (at least so far as I’m aware) is the degradation of available doctors. My wife who is chronically ill and requires full time skilled care, has been disabled for nearly a decade. After reading what Medicaid reimburses her primary care doc (~$40), I cornered him to ask if his practice lost money providing her care. He admitted that they did, but felt that if each doc was willing to pick up a few such patients that the system could work. ACA has since nearly doubled the patients using Medicaid here in CO, and we’ve already experienced nightmares trying to replace retiring physicians (she has 8 specialists in addition to her GP.)

      Her health degraded to the point that we needed to add a pain specialist to our roster. After a few weeks of diligent searching she found who she believed to be the only doc in the Front Range to accept Medicaid. After 6 months we received a letter that he is leaving the practice and she is being dropped as a patient. The departing physician is not going to accept Medicaid at his new practice. Barring some sort of miracle, I’m faced with the decision of allowing her to face opiate withdrawal and the return of excruciating chronic pain, or risking felony charges acquiring her medication by other means.

      1. As a side note, I would find any law requiring physicians to accept Medicaid as tantamount to slavery.

        1. Don’t you understand that there is a “right” to healthcare, by which of course we mean a “right” to the labor of others? Slavery is freedom!

      2. Horrible situation.

      3. Kinda makes you wish you could buy any drugs you wanted without overlord approval, huh?

        1. I live in Mexico a few months of each year. The only meds that require a script are antibiotics (as of a few years ago,) and narcotics. The vast majority of pharm drugs are purchased with cash (no insurance) and **shocker** they cost alot less than they do here.

      4. Tough. Good luck.

        The government is the single greatest skewer of things.

  5. Think about that for a second. This was essentially a brand new business venture that was prevented from relying on the expertise of anyone who might have the slightest idea what they were doing.

    No, it’s a sensible regulation to keep the real villains from messing up our wonderful profit-free co-ops.


    1. I am taking that as sarcasm but no doubt that is exactly what they are saying. That regulation is like starting a new restaurant and forbidding anyone who has worked in food service from working there and expecting to get a 5 Star rating.(Or for that matter pass a health board inspection)

      1. Society is sending clear signals, in their grand idiocy, that they just don’t want people making money off of healthcare.

        Makes we wonder how much longer health care professionals really have to make a good living.

        I, for one, welcome our new public-school-teacher-equivalent healthcare overlords.

        1. i dont think they think it through that far through. “sick people should see a doctor” is I think, the extent of their thought on the subject.

    2. Bernie thinks that makes sense

  6. I see nothing that can’t be fixed with massive new subsidies. It’s single payer through the back door.

    1. So bend over and try to relax.

  7. Get government out of the health insurance business as much as possible. Limit them to limited regulations and financial support for health insurance to those who need it.

    Obamacare, Medicaid, Medicare and VA hospitals should be phased out. People under these programs and those who are financially below the poverty level should be given a yearly amount that they could use to purchase health insurance.

    Keep the federal regulation stating that insurance companies have to cover pre-existing conditions as long as the person had previous insurance.
    Allow people to purchase insurance from any state. Deregulate state health insurance markets. Unhinge medical insurance from employers in the tax code.

    Getting government out and increasing competition in this way will lower health insurance costs. It cuts the bureaucracy costs, cuts the fraud costs and improves competition and quality of care.

    Why not do financial assistance for health insurance the same way we do financial assistance for food?

    1. If their motivation was to cover the poor and eliminate denial of coverage due to pre-existing conditions, they could have just tacked on massive groups to their existing insurance plan for govt employees. ACA was implemented as it was, I’m convinced, because they thought that they could improve healthcare by taking it over. That, or maybe those who contend that it was designed to fail in order to prime us for single payer were right. I just have a hard time believing that fedgov is anywhere near competent enough to pull it off.

      1. I said back then that I thought they designed it to fail so that they could either drive the private insurers out of business or blame the mess on them – so that people would be begging for single payer

        1. I don’t think the creators of the ACA had enough foresight for such a conspiracy. I think the explanation is pretty simple: people wanted cheaper or free healthcare, politicians (Obama and co) lied and said ‘oh yeah, we’ll do that no problem’ just to get elected. And of course they had to at least look like they were trying to have any chance at reelection, so they threw together this hodgepodge. Most of the things in the bill aren’t designed for function, but to pander to the sentiments of the idiots demanding ‘healthcare reform’ without knowing what it is. That’s why different components of the bill so often actually counteract each other. Forbidding denial of care for prior conditions drives up costs, while “minimum loss ratios” (price controls) cripple the ability of insurers to deal with higher costs. But, the average voter can’t connect one dot to another, so just by magic, big bad insurers couldn’t turn them down and had to lower prices, and that’s just the end of it.

          The whole thing isn’t remotely internally coherent, which makes it hard to believe there was any long run goal for it at all. I’m not sure anyone even cared whether it would work or not. It made enough people think they were getting something free that it got some people re-elected.

          1. They had to pass to see what was in it.

            1. pass it*

              Reason, please add the ability to edit posts.

            2. They had to pass to see what was in it.

              Sort of like checking for corn in a turd.

  8. I knew progressives hate any sign of individuality and making a profit, but I had no idea these co-ops were so strangled at birth. But it makes perfect sense as a way to make them fail so they could wait for everyone else to say “we tried; now what?” and bring up universal single payer. It’s right on a par with everything else they manage.

    1. Me: I’ve been pouring sulfuric acid on some of my plants and those plants keep dying.
      Prog: What you need to do is pour sulfuric acid on ALL your plants, that’ll fix it!

      1. The plants would have all suffered equally, so mission accomplished.

    2. why. the. fuck. would people respond to the ACA not working with more of the same?

  9. why is this considered a failure? It was designed to fail on purpose, which failure could then be used to justify national single payer health care.

    1. You (and everyone else who makes this claim) are giving the collectivists wayyy too much credit. They don’t have much foresight or insight, they really are this incompetent and foolish.

  10. Fifth paragraph:

    The Consumer Operated and Oriented Plan, or Co-Op, portion of the health care law established nonprofit health insurers that would receive federal funding and were intended to compete with private, for-private insurers on the exchanges as a way to lower prices.

    Believe that should be for-profit

  11. So, top men failed to make the new healthcare a success because they dont have enough control, and there isnt enough regulation.

    What we need is national healthcare like these other countries. Socialism has no real market or enonomy, and top men will set the prices right, and ensure everyone has healthcare. I mean, price controls work great, especially when top men ae setting them.

    The free market…….bah!!! Imagine, people in control of their own healthcare. Folks being free to reward good economic actors and punish bad ones. There will be CHAoSss!

    1. or…top men failed because they are clueless

  12. I’m taking a poll. Is the news of the continued failure of Obamacare:
    1) delicious
    2) sad
    3) schadenfrauline…something like that (and I can never say Worchestershire!)
    4) Elizabeth Warren is a slut

    1. I’ll take “yes” for $5 Trillion, Alex.

      Except for number 4. I never knew Elizabeth back in my Uni days, so I can’t comment.

  13. They were supposed to be small-scale single-payer systems that would be free from the profit motive…

    Might as well bang two rocks together while shouting at the sky to make it rain. Believing in magic will disappoint every time.

    1. Be careful where you put your thumbs on those rocks.

  14. As far as medicaid is concerned it was designed to enslave the states to federal money by bankrupting them. Then funds can be withdrawn if states don’t obey; just like obama is threatening states right now if they refuse syrian refugees.

  15. Those that advocate for single payer healthcare view the government as innocent as a newborn baby. The fact is the u.s. government is in much worse shape than private business as far as greed, waste, fraud and dodging laws the current administration doesn’t agree with. Anyone dumb enough to put the life of their family in the hands of the government is either: on the payroll of the government, socialist or stupid and that’s all bad. First, they get all the healthcare. Then they start trimming the fat (chronic health problems, low odds of survival, the old) and your tax potential will be factored into the equation. Even if government doesn’t take socialized medicine to the extreme some have you can expect waiting lists, less equipment, fewer doctors and less medical research. Don’t believe it? Why don’t you actually look into socialized medicine, here is an excellent article. http://fee.org/freeman/nationa…..-disaster/
    Realize this-to the government you are nothing more than a tax revenue, a vote and maybe some political donations; don’t think you are any more than that. You can track every one of obama’s moves based on politics. Does it help the democrats? Then obama will sign it, or use his phone.

  16. Communism by other means.

  17. Because they were designed by e3con-ignormauses?

  18. I have a more cynical and probably most-accurate explanation for why Obamacare co-ops keep failing.

    They were set up by Obama administration cronies for the express purpose of grabbing as much public money as possible, without care for whether they might succeed or fail. If they failed, they were prepared to ask for a taxpayer-funded bailout, and they knew that they would never be prosecuted for any crimes committed. If they succeeded, they were in a prime position to continue milking public monies with huge pensions, bonuses, and other kickbacks.

    To accomplish their goal, they were prepared to say whatever health insurance industry techno-jargon needed to be said, make whatever promises needed to be made, and buy whatever experts were needed to sell this huge gamble to the public.

    Here we are, talking and writing about the finer details of why or why not it this or that part of it would work, when the whole thing was a sham. This healthcare techno jargon is a intricate distraction from their thievery–a trap for us to fall into so we wouldn’t see the bigger picture of their truly evil nature.

    It is, in real life, the episode of The Simpsons, “Marge vs. the Monorail.” We have been scammed by a monorail salesman.

    1. Republicans are guilty of this kind of outright theft too. It happens quite often in the defense industry. For instance, it was abundantly clear early on that Lockheed Martin bribed their way into winning the multi-billion-dollar Joint Strike Fighter program. I figured this out just by watching a fairly tame documentary on the competition for the JSF between Lockheed and Boeing, and it was funny how Lockheed just kept getting “free passes” for failures that Boeing kept getting penalized for. Obviously, some upper-up wanted Lockheed to win.

      Sure enough, many years after the documentary, Lockheed’s JSF keeps failing important capabilities, and they keep asking for more public funds.

      Between the leftist and rightist boondoggles, we the American taxpayers are totally screwed.

      1. A few years ago I think the Cato Institute compiled a great (descriptive) list of the biggest wasteful defense expenditures. In it they mentioned that over half of all “defense systems” developed never end up being used; they’re scrapped as failures, that is. And most of these failed “systems” were very obviously impractical or redundant from the outset; plenty were downright ridiculous. They wasted tens of billions on these awesome new helicopters for the war in Afghanistan… whose computers stopped working in the cold; and of course much of Afghanistan is cold, so in short, the helicopters didn’t work.

        Stories like that, stories that make the $50,000 stapler or whatever look fiscally responsible, are dime a dozen with the DoD. Unfortunately that’s one money pit that’s never going to stop. Because if we can run the country’s economy into the ground fast enough, then there won’t be anything worth protecting and the terrorists will leave us alone!

    2. His name was LYLE LANLEY.

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  20. I find the responses below humorous at best.
    20 million people who had NO insurance now have it.

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