The General Accounting Office (GAO) released a report this week on the status of Consumer Operated and Oriented Plans or CO-OPs. (here) As I testified before the Congressional Joint Subcommittees of the House Oversight and Government Reform Committee, CO-OPs were doomed from their creation in the Affordable Care Act (ACA), or Obamacare. (here)

During the health care debate in 2009, proponents of more government control wanted a program that would compete with private insurance companies, hence the public option. Many supporters of the ACA believed this government option was a step too far and settled on CO-OPs as a compromise idea.

Although start-up costs for CO-OPs are provided by taxpayers and total $2.2 billion, the ACA restricts their marketing, limits their premium pricing, forces them to comply with all respective state health insurance regulations and requires them to be extremely efficient with a 95 percent medical loss ratio. Basically, CO-OPs are new health insurance companies without any established financial reserves and with premium pricing designed to attract sicker and, consequently, more costly patients.

To date, only 11 of the original 23 CO-Ops are still functioning and four of those have not enrolled the required 25,000 members. A total of 500,000 people had health insurance through the 12 closed CO-OPs and were forced to find new insurance.

In 2014, the Maine Community Health Options (MCHO) had the majority share of individual health insurance in the state and appeared to be one of the financially strongest CO-OPs in the country. No surprise, it attracted a high percentage of sicker people and did not set high enough insurance premium rates for 2015. The Maine Bureau of Insurance has now warned the federal government that MCHO is at risk for insolvency. (here)

The original Affordable Care Act, or Obamacare, established “risk corridors” where insurance companies that made an excess profit would share that profit with companies that lost money. In 2014, overall losses exceeded profits by $2.5 billion. Congress responded twice with legislation, signed into law by President Obama, that prohibited covering those losses with taxpayer money.

Ironically, the defunct Oregon CO-OP is now suing the federal government to get its losses covered. Other CO-OPs will likely join in the lawsuit on a class-action basis.

CO-OPs, by their very design are doomed to fail. They are start-up insurance companies, most of which are managed by inexperienced administrators, that have limited access to funding. They attract the sickest, most costly patients and must then set their insurance rates too high to attract healthy people.

Hopefully, the class-action lawsuit will be thrown out and CO-OPs will expire without further taxpayer money. Tragically, the enrollees will need to find other health insurance, even though the demise of CO-OPs was predictable from the beginning.