The Cascading Collapse of Obamacare’s COOPs

One piece of Obamacare is already collapsing: The COOPs (cooperative insurers) that the federal government propped up with loans to compete in exchanges. Many are now closing down under pressure from state insurance departments, as they are threatened with insolvency because they charge premiums in the Obamacare exchanges that do not cover costs.

The administration is desperate to stave off the day of reckoning, going so far as to insist the federal loans be categorized as “assets” (rather than liabilities) on the COOPs’ balance sheets. Well, state insurance departments are having none of it. The story of Colorado’s Obamacare COOP illustrates why these new insurers were willing to risk insolvency in the exchanges, despite insisting they were doing business prudentially.

Last Friday, Colorado’s Division of Insurance ordered the state’s Obamacare COOP not to offer policies in the state’s Obamacare exchange next year. To show how quickly this COOP has fallen, I’ll share three stories:

First, from November, here’s the Colorado HealthOP’s CEO bragging about her low premiums as Obamacare’s second open season rolls out:

Colorado HealthOP chief executive Julia Hutchins said critics and competitors who say their aggressive pricing for the second open enrollment was an attempt to buy up market share have the wrong spin on things. The CO-OP is a fundamentally different approach, she said.

“We’re a nonprofit. We’re not trying to buy anything,” Hutchins said. “We were created to serve everybody.”

(Electa Draper, “Colorado Health CO-OP build to shake up state insurance marketplace,” Denver Post, November 17, 2014.)

Second, after the end of the second open season, here she is explaining how her grabbing huge market share through low premiums is a good business practice:

Colorado HealthOP, one of 23 CO-OPs nationwide, reduced premiums on its middle-tier, or silver, plans by an average of 10 percent. Its customer count shot up from about 14,200 in late 2014 to about 75,000 this enrollment period.

“We’re right about where we projected we’d be,” said HealthOP chief executive Julia Hutchins. “Growth is really important for stability. You really need a big pool to spread risk effectively.”

(Electa Draper, “Colorado HealthOP’s surge on insurance exchange carries red flag,” Denver Post, March 16, 2015.)

Finally, here is Colorado HealthOP’s press release, looking back in anger, in response to the regulator’s decision last Friday:

This morning, the Colorado Division of Insurance (DOI) announced that Colorado HealthOP will not be able to sell its plans on the Connect for Health Colorado marketplac

Colorado HealthOP’s closure is the latest in a series of CO-OP shut downs across the country, spurred by the federal government’s failure to pay billions of dollars in promised funding.

(Colorado HealthOP, “Colorado HealthOP vows to fight for member interest after Division of Insurance’s closure decision,” press release, October 16, 2015.)

So, the COOPs’ business plans did not fail. It is the taxpayers who failed! The COOPs expected to be able to go back to Congress for unlimited bailouts. Too often, this is a credible strategy for businesses dependent on government. Unfortunately for the COOPs, the taxpayers chose to elect representatives who were not interested in continuing this game.

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For the pivotal alternative to Obamacare, please see the Independent Institute’s book, A Better Choice: Healthcare Solutions for America, by John C. Goodman.