NCPA - National Center for Policy Analysis

Health Insurance CO-OPs Fail

October 29, 2015

Just recently four health insurance CO-OPs failed and cooperatives in Oregon, Colorado, Tennessee and Kentucky have either announced the decision decrease their operations or have been forced to stop writing policies, says senior fellow Devon Herrick of the National Center for Policy Analysis.

These cooperatives were intended to function as a so-called "public plan option" under Obamacare. But they were established to gain support from those who wanted a government health insurer to replace the private health insurance industry.

CO-OP proponents naively believed that health insurance CO-OPs would out-compete for-profit insurers because CO-OPs ostensibly do not have a profit motive.

The CO-OP program was plagued by numerous flaws from the start:

  • They had no customers and no historical actuarial data to assist in setting realistic plan premiums.
  • The pool of potential enrollees was sicker than average.
  • CO-OPs had virtually no access to the capital markets to shore up losses.
  • Moreover, the eight CO-OPs that have failed so far in 2015 owe taxpayers nearly $1 billion in loans that will never be repaid.

Some CO-OPs appear to be purposely underpricing premiums to gain market share. Thus, from the very beginning, many CO-OP executives have expected taxpayers to bail out their losses. This attempt at "gaming the system" should not be allowed, but unfortunately, the remaining CO-OPs will likely go broke owing taxpayers large sums of money.

Source: Devon Herrick, "Health Insurance CO-OPs Fail… at Gaming the System," Townhall, October 21, 2015.


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