NCPA - National Center for Policy Analysis

Obamacare Health Insurance COOPs Are Unraveling

June 4, 2015

Many supporters of the Patient Protection and Affordable Care Act (ACA) wanted a public plan option to compete with the private insurers offering insurance in the state and federal health exchanges. To placate these progressives, the ACA created a type of nonprofit health insurance cooperative that would borrow funds from the government for start-up costs and solvency reserves.

However, the Consumer Operated and Oriented Plans, or health insurance COOPs, as they are commonly known, are slipping into insolvency. All but one lost money in 2014 and one failed spectacularly — singularly forcing about 20 percent of all COOP enrollees to shop for another plan. Worse yet, many COOPs appear to be setting artificially low premiums to gain market share, in the process losing money taxpayers are expected to cover. The latest failure was Iowa-based insurer CoOportunity Health.

What are Health Insurance Cooperatives?

  • COOPs are taxpayer-funded, nonprofit health insurance cooperative established under the ACA.
  • COOPs were a political compromise during the health care debate, primarily serving as an alternative to the public plan option many progressives wanted.

The COOP program is plagued by numerous flaws. When COOPs were established, they had no customers and no historical actuarial data to assist in setting plan premiums. Startup funds and cash reserves were borrowed from the government, with funds allocated by the ACA. In any other industry the members of an operating cooperative are the owners of the entity and provide its capital. Yet, this model does not easily apply to health insurance cooperatives.

The customers of a health insurer are unlikely to spend, say, an additional $1,000 each to fulfill capital requirements. Thus, it stands to reason the cooperative business model is ill-suited to an industry requiring vast amounts of capital mandated by insurance regulations.

Making matters worse, COOP proponents' political agenda overshadowed economic considerations — dooming what little chance of survival COOPs ever had.

Source: Devon Herrik, "Obamacare Health Insurance COOPs Are Unraveling," National Center for Policy Analysis, June 2015. 


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