by Mitch Kokai
Senior Political Analyst, John Locke Foundation
John Tozzi documents for Bloomberg Businessweek readers the recent spate of bad news associated with Obamacare health insurance co-ops.
When state health insurance marketplaces were created under the Affordable Care Act (ACA), the Obama administration was worried there wouldn’t be enough competition to keep premiums low. So it loaned $2.4 billion to establish 23 nonprofit health insurers known as consumer operated and oriented plans, or co-ops. Although the co-ops struggled in their first two years, most were still expected to offer plans for 2016 when the marketplaces open for enrollment on Nov. 1.
Turns out, many won’t. Ten co-ops have folded this year after state regulators stopped them from offering plans, because of weak balance sheets. Seven have closed just since the end of September, the most recent on Oct. 27. That’s left more than 500,000 people to find new coverage, some in rural areas that now have only a single ACA provider. Co-ops in New York, Oregon, Colorado, and elsewhere are also at risk of defaulting on their federal loans.
That’s because the government is paying out only a fraction of the money it owes the co-ops under an Obamacare provision guaranteeing support for insurance plans facing high medical payouts. As recently as July 21, the administration said it would pay 100 percent of what insurers expected to get. But on Oct. 1 it announced the government would pay just 13¢ on the dollar because of restrictions Congress added after the ACA was passed—a hit many small co-ops couldn’t absorb.
The events that led to the co-ops’ failures show how a simple policy idea—to hold premiums down by fostering competition—got swallowed by the toxic politics of Obamacare. Dawn Bonder, the chief executive officer of Oregon’s Health Republic Insurance, likens it to a game of Jenga. “You can only pull out so many pieces before it will implode upon itself,” she says.