Even If You Like Your Obamacare Co-Op Insurance, You Probably Can’t Keep It

One of Obama­care’s most lib­er­al pro­vi­sions is dy­ing.

The Con­sumer Op­er­ated and Ori­ented Plan pro­gram, which es­tab­lishes non­profit in­sur­ance plans, was in­cluded in the health care law to spur com­pet­i­tion and lower premi­ums on ex­changes. It was also a con­sol­a­tion prize for pro­gress­ives, who were hop­ing for a “pub­lic op­tion” fed­er­al in­sur­ance plan but couldn’t find the votes for it.

Now, five years after be­ing passed in­to law, the CO-OP pro­gram is fall­ing apart, with 21 of the 23 non­profit in­surers par­ti­cip­at­ing in the pro­gram in­cur­ring net losses as of the end of last year. As of this month, 12 have closed, un­able to stay in op­er­a­tion after char­ging premi­ums too low to pay for en­rollees’ health care claims. Al­though some of the re­main­ing co-ops seem stable, sev­er­al oth­er co-ops’ rates will skyrock­et in 2016, with double-di­git in­creases as high as al­most 40 per­cent.

For the hun­dreds of thou­sands of people los­ing their in­sur­ance, this is an alarm­ing de­vel­op­ment. But in Con­gress, it ap­pears that both the pro­gram’s pro­ponents on the Left and crit­ics on the Right long saw this col­lapse com­ing. A pa­per trail of over­sight re­ports and con­gres­sion­al let­ters points back to at least 2013, when the alarm bells first began ringing both in Con­gress and the De­part­ment of Health and Hu­man Ser­vices. Yet from big talk came little ac­tion, and the co-ops were left alone to spin their wheels.

In­stead, Con­gress re­peatedly slashed fund­ing to the pro­gram, without of­fer­ing either a fix or a re­place­ment.

How a pro­gram that hun­dreds of thou­sands are de­pend­ing on for their in­sur­ance could be left to with­er while Con­gress did noth­ing to fix it—or re­place it with something more pal­at­able to the cur­rent ma­jor­ity—is, in part, the fa­mil­i­ar story of the Af­ford­able Care Act, in which dis­agree­ment over the law as a whole strangles any at­tempts to im­prove its parts.

But now, the death cycle of the co-ops demon­strates that the con­sequences of this le­gis­lat­ive auto­pi­lot are hit­ting home—not for politi­cians, but for the people they’re elec­ted to serve.

Neg­lected, sab­ot­aged, or just a dumb idea?

For most law­makers, the co-op pro­gram was nev­er a first choice.

They wanted a pub­lic op­tion that would have in­cluded a pub­licly run in­sur­ance plan—com­par­able to Medi­care—in an ex­change con­sist­ing of com­pet­ing private plans. But some mod­er­ate Demo­crats, as well as nearly all con­ser­vat­ives, op­posed it as too much gov­ern­ment in­ter­ven­tion in­to the health in­sur­ance mar­ket. Ad­di­tion­ally, the in­sur­ance lobby and med­ic­al pro­viders said it could drive down pro­vider-re­im­burse­ment levels, caus­ing doc­tors and hos­pit­als to charge private in­surers more and, in turn, for­cing private in­surers to raise premi­ums.

Even­tu­ally, lib­er­als who wanted the pub­lic op­tion con­ceded, and in­cluded in the bill in­stead was a pro­vi­sion cre­at­ing non­profit, con­sumer-op­er­ated in­sur­ance plans that would com­pete in in­sur­ance ex­changes. Less con­tro­ver­sial, they had the sup­port of lib­er­als skep­tic­al of private in­sur­ance and sen­at­ors from rur­al states in which co-ops had a re­cord of suc­cess in oth­er sec­tors.

But health in­sur­ance is, by nature, a risky busi­ness, and non­profit start-up in­surers would need fund­ing to work with. Start-up loans were writ­ten in­to the de­scrip­tion, which were to even­tu­ally be paid back to the gov­ern­ment after the co-ops the­or­et­ic­ally be­came self-sus­tain­able. In the mean­time, ac­cord­ing to the plan, mar­ket­place en­rollees would be­ne­fit from the co-ops; as non­profits, all rev­en­ue would go to­wards lower­ing premi­ums, driv­ing down costs through com­pet­i­tion in the en­tire mar­ket­place.

The co-ops were cham­pioned by rur­al sen­at­ors such as former Sen. Kent Con­rad, a Demo­crat from North Dakota, and Re­pub­lic­an Sen. Chuck Grass­ley of Iowa, who was then rank­ing mem­ber of the Fin­ance Com­mit­tee and was at the table while Demo­crats were still hop­ing to move the bill with GOP sup­port. But even as the par­tis­an split sharpened dur­ing the Con­gress’ year­long battle over the law’s pas­sage, co-ops re­mained un­der the radar and went in­to the fi­nal bill largely un­touched. What cri­ti­cism there was of co-ops was mostly fol­ded in­to gen­er­ic cri­ti­cism of the Demo­crats’ health care re­form plans as a whole, al­though health care ex­perts voiced their skep­ti­cism. But the pro­gram was nev­er an in­teg­ral part of the health care law, and once the pub­lic-op­tion battle was lost, there wer­en’t any real al­tern­at­ives to the al­tern­at­ive.

What fol­lows is a story of slow de­cline. In Decem­ber of 2014, the Iowa in­sur­ance com­mis­sion­er an­nounced it was tak­ing over the co-op serving both Iowa and Neb­raska, CoOppor­tun­ity. It could not cov­er its en­rollees’ health care costs, and it could not get any more money from the Cen­ters for Medi­care and Medi­caid Ser­vices. In Janu­ary, the plan was des­ig­nated for shut­down. A stream of co-op clos­ure an­nounce­ments fol­lowed, with the grand fi­nale a cluster of co-ops shut­ter­ing be­fore Nov. 1, the start of open 2016 en­roll­ment.

The evid­ence of the de­cline is ubi­quit­ous. What’s not clear, however, is wheth­er the co-ops were doomed from the in­cep­tion, or wheth­er they might have suc­ceeded had Con­gress been more act­ive in help­ing the law—or at least not work­ing against it.

“There were some hopes and pray­ers as­so­ci­ated with the co-ops that were prob­ably un­real­ist­ic,” said Larry Levitt, a seni­or vice pres­id­ent at the Kais­er Fam­ily Found­a­tion. “The sup­port for the co-ops was as much ideo­lo­gic­al as prag­mat­ic. The way they emerged was so bizarre.”

Without a time ma­chine, it’s dif­fi­cult to know what Con­gress might have done to save the fail­ing co-ops. It’s pos­sible that through more fin­an­cial sup­port, or a re­struc­tur­ing of the pro­vi­sions de­signed to help the new in­surers deal with their risky ini­tial years on the ex­changes, more of them might have sur­vived.

But re­gard­less of what might have been, what ac­tu­ally happened is that Con­gress slashed funds to the pro­gram.

When the Af­ford­able Care Act passed in 2010, it al­loc­ated $6 bil­lion in fund­ing for the CO-OP pro­gram, which was to be used to make loans to qual­i­fied co-op ap­plic­ants to help them get on their feet. Start-up fund­ing was es­sen­tial to the suc­cess of the co-ops. New in­surers have to guess how to price their premi­ums, hav­ing no pri­or claims data to use. Loans put money in the bank in case claims are more ex­pens­ive than the amount brought in by premi­ums. The idea was that even­tu­ally the co-ops would ad­just, learn their en­rollees, sta­bil­ize, and be able to re­pay their loans.

But $6 bil­lion turned out to be too at­tract­ive as an off­set for oth­er le­gis­la­tion, and it was ne­go­ti­ated away long be­fore the ACA mar­ket­places were up and run­ning. In 2011 and 2012, ap­pro­pri­ations bills passed un­der Re­pub­lic­an House lead­er­ship re­duced the fund­ing level to $3.4 bil­lion. At the end of 2012, CO-OP fund­ing was chopped once again un­der the Amer­ic­an Tax­pay­er Re­lief Act; in 2013, an­oth­er $13 mil­lion was lost to se­quester, and CMS ended up award­ing only $2.4 bil­lion in loans to co-ops.

And then in 2013, dur­ing the dis­astrous rol­lout of Health­care.gov, the co-ops took an­oth­er blow. The Obama ad­min­is­tra­tion an­nounced that in­surers could wait, even­tu­ally say­ing un­til 2016, to can­cel plans not in com­pli­ance with the ACA. This, the­or­et­ic­ally, kept some health­i­er, wealth­i­er people who liked their cur­rent plans out of ex­changes, mak­ing en­rollees more ex­pens­ive than ori­gin­ally in­ten­ded.

The ACA also built in ad­di­tion­al safety-net pro­vi­sions for in­surers who agreed to sell plans on ex­changes, a risky en­deavor. One of these pro­vi­sions was the risk-cor­ridor pro­gram, which would re­dis­trib­ute funds from in­surers who made more than their tar­get and give them to in­surers who had made less than the tar­get.

But in Oc­to­ber, fed­er­al au­thor­it­ies an­nounced in­surers would at first re­ceive only 12.6 per­cent of the funds they re­ques­ted through the pro­gram. A pro­vi­sion in a budget bill passed last year, pushed by Sen. Marco Ru­bio, re­quired the risk-cor­ridor pro­gram to be budget neut­ral.

While in­surers on ex­changes owed money through risk cor­ridors—in­clud­ing co-ops —sub­mit­ted claims for $2.87 bil­lion, they are only re­ceiv­ing $362 mil­lion. The full amount prob­ably wouldn’t have saved the co-ops, but the short­fall in­sured that the last-re­sort meas­ure wouldn’t help.

Why didn’t any­one do any­thing?

“Strongly worded let­ters” are writ­ten so fre­quently in Con­gress, and to so little ef­fect, that the phrase has be­come a catchall term for fu­tile ac­tion. So, when Re­pub­lic­an Sen. Or­rin Hatch of Utah penned one such let­ter in late 2013 warn­ing of a co-op’s de­mise, it was un­der­stand­able that it passed without much no­tice—dis­missed as an­oth­er ripple in the du­el­ing rivers of par­tis­an rhet­or­ic about Obama­care.

In­stead, Hatch’s let­ter proved proph­et­ic.

“We made it pretty clear that they wer­en’t go­ing to work, and they haven’t worked, nor did they really have much of a chance to work,” Hatch, cur­rently chair­man of the Sen­ate Fin­ance Com­mit­tee, said in an in­ter­view. Sens. Lamar Al­ex­an­der of Ten­ness­ee, Mi­chael En­zi of Wyom­ing, and Tom Coburn of Ok­lahoma coau­thored the let­ter with him, as well as Rep. Charles Bous­tany of Louisi­ana, who was then chair­man of the House Ways and Means Com­mit­tee’s over­sight sub­com­mit­tee.

After Hatch sent the let­ter to HHS, he said, “that was kind of the end of it, as far as the ad­min­is­tra­tion was con­cerned. They don’t think seem to be that in­ter­ested in try­ing to re­struc­ture it or change it or get it to work.” But then he de­faul­ted back to a broad­er cri­tique of the health care law—an “ab­ject fail­ure,” he said—and Demo­crats’ per­ceived re­luct­ance to ad­mit its short­com­ings. On co-ops spe­cific­ally, while he and the oth­er Re­pub­lic­ans “raised the is­sue … it’s been im­possible to really cor­rect Obama­care be­cause the Demo­crats treat it like a scrip­ture,” he said.

Hatch wasn’t the only one who sensed trouble on the ho­ri­zon. Earli­er that year, in Ju­ly, HHS’s Of­fice of In­spect­or Gen­er­al re­leased a fore­bod­ing re­port: “If un­fore­seen cir­cum­stances … or bar­ri­ers … im­pede CO-OPs from be­com­ing op­er­a­tion­al,” the re­port read in a sec­tion de­tail­ing what it found, “there is a risk that CO-OPs could ex­haust all star­tup loan fund­ing be­fore they are fully op­er­a­tion­al or be­fore they earn suf­fi­cient op­er­at­ing in­come to be self-sup­port­ing. This may af­fect the CO-OP pro­gram in the long term.”

As it so hap­pens, what was deemed a “risk” is al­most ex­actly what has happened to more than half of the co-ops es­tab­lished un­der the health care law.

This was clear in a hear­ing held by a Ways and Means sub­com­mit­tee on the ail­ing pro­gram earli­er this month. “In the face of mul­tiple pres­sures, it’s not sur­pris­ing that some new entrants have struggled to suc­ceed,” said Mandy Co­hen, CMS chief op­er­at­ing of­ficer and chief of staff, while testi­fy­ing be­fore the com­mit­tee.

Co­hen lis­ted ways HHS has mon­itored the pro­gram: “There are guide­posts and check­points, and we make sure to look at over­sight,” she said. “If we feel like they’re go­ing bey­ond the guard­rails we set up, we en­hance our over­sight, put folks on en­hanced over­sight or cor­rect­ive ac­tion plans; we do on-site vis­its to gath­er more in­form­a­tion than just them send­ing us in­form­a­tion.

“I don’t think we’ve been easy on the co-ops. … We’ve taken our job as stew­ards of the tax­pay­er dol­lar very ser­i­ously,” she said.

Most mem­bers of Con­gress are happy to ex­plain why they didn’t save the co-ops: The oth­er side of the aisle would have nev­er let any­thing pass.

Demo­crats don’t want to touch their fa­vor­ite-yet-fail­ing law, Re­pub­lic­ans say. And Re­pub­lic­ans turn up their noses at any­thing that might im­prove Obama­care, des­per­ate to prove it doesn’t work, Demo­crats counter.

“You can’t get the Demo­crats to do any­thing on Obama­care. We’ve tried on vari­ous oc­ca­sions to find—not ne­ces­sar­ily on that is­sue—but yeah, we’ve tried to get them to work with us on some of these Obama­care is­sues,” Hatch said. “It’s as though it’s an in­vi­ol­ate set of scrip­tures, but scrip­tures are items that really are true, and work, and don’t des­troy things. Obama­care avoids all three of those.”

“All the Re­pub­lic­ans want to do is vote to elim­in­ate the Af­ford­able Care Act,” said Sen. Debbie Stabenow, a Michigan Demo­crat. “So when we have things that would be good to ad­dress, in­stead all we have are votes to re­peal the Af­ford­able Care Act in­stead of ad­dress­ing things.”

And so what happened was noth­ing.

“Find me any­one in Con­gress that made any pro­pos­al what­so­ever to sug­gest that we do any­thing to fix them,” a Grass­ley aide said. “Show me where it is that CMS said, ‘Hey, please come to the res­cue.’ Where’s the white horse? I don’t think that happened.” 

So what now?

The more than 110,000 Iow­ans and Neb­raskans re­ceiv­ing in­sur­ance through CoOppor­tun­ity were not only the first to fall, but also were among those who fell hard­est. The co-pays and de­duct­ibles they’d been pay­ing in­to did not trans­fer, and con­sumers had to start over again with new plans.

“We had folks who spent money. And they’re not go­ing to get the money back,” the Grass­ley aide said.

Hun­dreds of thou­sands—more than 200,000 on New York’s failed co-op alone—must now find new health in­sur­ance, al­though HHS has ar­gued that to make the most of the sys­tem, con­sumers need to shop around any­way.

“All those people right now hope­fully can use win­dow shop­ping and are go­ing win­dow shop­ping to fig­ure out what they might want to do,” HHS Sec­ret­ary Sylvia Math­ews Bur­well told re­port­ers at a brief­ing in Oc­to­ber.

There is a pos­it­ive takeaway to be had on the co-ops’ fail­ure: On one hand, it shows the com­pet­it­ive­ness of price-sens­it­ive Obama­care mar­ket­places.

But with the de­par­ture of the co-ops, that com­pet­i­tion is di­min­ished. The plans were in many in­stances the first or second low­est-cost sil­ver plan on the mar­ket­place, and their ab­sence could both de­crease com­pet­i­tion and raise premi­ums. Co-ops were some­what more likely to fail where they had been one of the two low­est-cost sil­ver plans, in at least half of the states. All but one of the states us­ing Health­care.gov in which a co-op has closed also have bench­mark premi­um rate in­creases in 2016 that are high­er than av­er­age. However, tax cred­its are also tied to the bench­mark plans, so as those premi­ums rise or fall, sub­sidies re­flect those changes.

It’s up in the air wheth­er tee­ter­ing co-ops will be able to right them­selves and con­tin­ue on as planned. If they do, the pro­gram will prob­ably con­tin­ue in a stable, smal­ler ver­sion of its ori­gin­al self. And if the con­gres­sion­al fight over co-ops moves along the fa­mil­i­ar Obama­care drama tra­ject­ory, the pro­gram’s fail­ure will even­tu­ally be for­got­ten or fade in­to a bul­let point lis­ted among the slew of reas­ons why the law should be re­pealed and re­placed.

But it’s also in­de­term­in­ate wheth­er oth­er pro­vi­sions of the law will sim­il­arly fall vic­tim to con­gres­sion­al grid­lock over the Af­ford­able Care Act, which is show­ing no signs of abat­ing any­time soon. The coun­try’s new­est en­ti­tle­ment pro­gram has been left on le­gis­lat­ive auto­pi­lot for the last five years, leav­ing its course to be de­term­ined by how far the ad­min­is­tra­tion can bend the stat­ute to its lik­ing—and how sym­path­et­ic the Su­preme Court will be un­til Con­gress de­cides to aban­don its talk­ing points in or­der to amend the law.

With the pres­id­en­tial elec­tion a year away and a fili­buster-proof Obama­care-re­peal bill cur­rently work­ing its way through the Sen­ate, the chances of any large-scale, con­tro­ver­sial ACA ed­its in the near fu­ture are slim. And in that case, the CO-OP mod­el of con­gres­sion­al in­ac­tion—and the costs it im­poses on people who live un­der it—is an oc­cur­rence the coun­try should get used to.