CO-OPs – Healthcare’s $1.9 Billion “Solyndra” Experiment

A late addition to Obama’s healthcare reform bill was $6 billion worth of funding for Consumer Operated and Oriented Plans, or put more simply: CO-OPs. Conceptually, these are non-profit member-driven health insurance companies designed to compete against the larger, for-profit carriers. The end vision is a more effective, competitive marketplace.

The History
Originally a Republican idea, CO-OPs became reality out of a compromise to Obama’s 2008 proposal to have a “public option” offered alongside the for-profit and private insurer options. The underlying goal here is for CO-OPs to lower insurance premiums for everyone, since the for-profit carriers would now be competing against the cheaper, public options. While Senators such as Chuck Schumer of New York have argued for CO-OPs, many critics believed that a government controlled “option” will ultimately end the leveled playing field that the healthcare reform bill initially intended to create. Ironically, despite the need for fair rules,  CO-OPs  now have rules buried in the final guidelines that allows their qualified health plans (QHPs) sold on the exchange to only represent 2/3rd of their total enrollment.

In a late-night back-room Fiscal Cliff deal, Congress elected to cut CO-OP funding to $3.8 billion. The focus now is building one CO-OP per state, funded through low-interest loans (see below) given to non-profit carriers that would apply to act as a state’s CO-OP. Fear has since arisen that since new entities will run these CO-OPs, they will lack the bargaining power of their for-profit counterparts. This could dramatically impact their ability to not only compete, but also remain solvent and pay back those 0% loans on time. CO-OPs could quickly become the healthcare version of Solyndra, the only difference being one bankruptcy disaster for every state.

Loans Already Paid
So far, Health and Human Services has issued $1.9 billion in loans to CO-OPs that will launch in 24 states. Still, these particular states only represent 33% of the uninsured population, with the loans averaging out to $159 per uninsured person. However, these numbers quickly become distorted due to a lack of economies of scale. Vermont, for example, will cost $608 per uninsured person with only 56,000 uninsured while other states with upwards of two million can sink to $67 per person. Clearly, the uninsured landscape shifts dramatically from state to state.

With 29.2 million uninsured Americans remaining in the states lacking current loans, it would take $4.6 billion to launch a CO-OP in each state by January 1st, 2014. As mentioned early, the Fiscal Cliff compromise lowered the funding to $3.8 billion, yielding an $800 million delta. I suppose we can throw a “TBD” label on this one.

For further information on CO-OPs:
Rules & Regulation – Federal Register

Briefing Room Analysis

CO-OP Analysis  (as of 1/28/2013)
States w/ CO-OP Loan


Uninsured in States w/   CO-OP Loans


Wt. Avg Loan $ per   Uninsured


Total CO-OP Loans   Dispersed


States w/o CO-OP Loan


Uninsured in States w/o CO-OP Loans


Wt. Avg Loan $ per   Uninsured


Total CO-OP Loans   Needed


Based on data from HHS   & KFF

Highlights of Loan Perimeters:

Two types of loans

  • ‘‘Start-up Loans’’ must be paid back in 5 years.
  • “Solvency Loans” must be paid back in 15 years

Interest Rates for loans

  • “Start-up Loans” is the average interest rate on marketable Treasury securities of similar maturity minus one percentage point and the interest rate cannot be less than zero percent.
  • Solvency Loans will be equal to the greater of the average interest rate on marketable Treasury securities of similar maturity minus two percentage points or zero percent.

CO–OP applicant receiving a loan must offer at least one QHP at both the silver and gold benefit levels

Late payment penalties require CO-OP recipients to pay 110% of the loan including interest.

2 thoughts on “CO-OPs – Healthcare’s $1.9 Billion “Solyndra” Experiment

  1. Pingback: Top 10 of 2015: #9 CO-OPs | The Briefing Room

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