While the debut of the Affordable Care Act this month has been marred by widespread computer problems, the difficulties the co-ops face have been less obvious to consumers. One co-op, however, has closed, another is struggling, and at least nine more have been projected to have financial problems, according to internal government reviews and a federal audit.
Their failure would leave taxpayers potentially on the hook for nearly $1 billion in defaulted loans and rob the marketplace of the kind of competition they were supposed to create. And if they become insolvent, policyholders in at least half the states where the co-ops operate could be stuck with medical bills.
Although the co-op plan originated in the Senate, resistance to the initial proposal quickly materialized on Capitol Hill, in part because of pressure from insurance industry lobbyists.
So Congress saddled its new creations with onerous restrictions that, experts say, doomed many co-ops to failure. Federal grants for the co-ops were converted to loans with tight repayment schedules; they were barred from using federal money for crucial marketing; and they were severely limited from selling insurance to large employers, which represent the most lucrative market.
And even as the Obama administration was setting up the program, White House officials, who had no pride of authorship and feared it would be risky, repeatedly suggested that funding for the co-ops be reduced, according to more than half a dozen people familiar with budget negotiations and the legislative debate. The funding was cut to a small fraction of what experts told Congress would be needed for the ventures to be viable.
Brian Cook, a spokesman for the Centers for Medicare and Medicaid Services (CMS), the federal agency overseeing the co-ops, said it is closely monitoring their progress and is “confident that co-ops will be an important option available to millions of consumers.”
But while the program was meant to be nationwide, only two dozen co-ops have begun selling insurance on the new health-care exchanges. The difficulties the co-ops are confronting pose a challenge to the new law that is largely separate from the troubled rollout of the exchanges this month. But the problems, in particular the malfunctioning federal Web site, are hitting the co-ops hard because they depend on the exchanges for business.
The co-ops differ from traditional insurers in their nonprofit status, consumer focus and organizational structure; they will be governed by boards controlled by policyholders.
Those co-ops that have opened their doors are scrambling to prevail against the odds, sending their small staffs door to door to educate people about what they do without violating a ban on explicit marketing. To get around what she called the “really difficult” restriction, Julia Hutchins, chief executive of the Colorado Health Insurance Cooperative, was reduced to dispatching scantily clad models into the streets of Denver to urge people to “get covered.’’