Image source: White House on Flickr. 

The Patient Protection and Affordable Care Act, which you probably know best as Obamacare, has been a controversial law since the get-go.

Despite its controversy, the law has enrolled nearly 10 million paying customers as of June, according to the Centers for Medicare and Medicaid Services. Additionally, the 30 states that expanded Medicaid coverage can account for millions of low-income Americans who are now covered, perhaps for the first time ever.

The debate overshadows the results
However, instead of the enrollment figures, controversy continues to define this health reform law. First it was the technical glitches that lasted for two full months during the first enrollment period and prevented millions of Americans from enrolling in Obamacare. Then it was Supreme Court cases that helped define whether or not Obamacare violated certain aspects of the constitution. Now one particular controversy has yet again reared its ugly head: millions of Americans being unable to keep health plans that they like.

President Obama once said regarding Obamacare, "If you like your healthcare plan, you can keep it." This turned out to be not entirely true, as the enhanced benefit requirements of health plans on Obamacare exchanges meant that some inexpensive health plans purchased prior to the implementation of Obamacare would no longer be valid. Further, some insurers simply found the cost of making their plans compliant too high and wound up abandoning them altogether. In total, some 6 million people lost their policies and were required to seek out new plans (and potentially new primary care physicians), according to comments made by the now-former House of Representatives Speaker John Boehner (R-Ohio).

Now it looks as if the same process could be repeating itself all over again -- although, thankfully, on a much smaller scale.


Image source: Social Security Administration.

Why 400,000 Americans are set to lose their health plan
As first reported by Forbes, some 400,000 Americans are set to lose their insurance by the end of 2015 as five major cooperatives, including the two largest in the country, wind down their operations. This includes the Kentucky Health Cooperative (with 51,000 members), the Health Republic Insurance of New York (the largest co-op with more than 150,000 members), the Louisiana Health Cooperative, the Nevada Health Co-Op, and CoOportunity Health in Nebraska and Iowa. In total, of 23 operating co-ops in the country, just one has been profitable thus far this year!

Healthcare cooperatives, or co-ops for short, are nonprofit organizations run by the people, for the people. Yeah, I know that sounds a bit cliche, but the idea behind creating healthcare co-ops is to provide new alternatives to health insurance in a number of states and locales in order to keep pricing competitive and ensure that as many consumers as possible have an opportunity to purchase affordable health insurance. But based on Forbes' data, it looks as if the co-op experiment under Obamacare has been an abysmal failure thus far.

Source: Kentucky Health Cooperative.

Why co-ops are failing
On one hand, starting an Obamacare-based co-op is designed to provide a genuine community feel in order to attract as many new enrollees as possible. Since they aren't dependent on shareholders, co-ops are also perceived to be more trustworthy and cost-effective than standard insurers.

Unfortunately, a lot of barriers stand between co-ops throughout the country and success. For starters, few co-ops had leaders with any substantive experience in the insurance industry. This is somewhat important if these companies hope to negotiate reasonable premium rates within a state or locale, or to lease space in hospitals or within physician networks, at a cost-effective rate.

Compounding the problem, most co-ops set their rates far too low during the first (and even second) year of Obamacare. Although this worked to attract a substantial number of enrollees, as the data showed most co-ops lost money since sicker individuals were among the first to enroll.

Of course, this problem isn't confined to the co-ops. New entrants into the individual market, such as Molina Healthcare and Centene, had no prior experience pricing out individual healthcare plans when they entered the fray in 2013. Their first two years on Obamacare exchanges have been a learning experience, which at times has been rocky.

The solution to ensuring that co-ops survived under Obamacare is the so-called "risk corridor." The risk corridor essentially takes money from highly profitable insurers and gives it to insurers that are deeply underwater. The risk corridor is designed to give start-ups adequate time to find the right premium price to cover their costs, as well as to encourage new insurance participants, such as co-ops, to enter the marketplace. But, as Forbes points out, the risk corridor payments made to these co-ops was in many instances much lower than what they needed to survive.

Why is the risk corridor failing to provide for co-ops? It's a bit unclear at the moment, but the assumption is that there simply aren't enough financially healthy insurers under Obamacare to make up the shortage needed to cover the red ink at cooperatives and other insurers that are losing substantial amounts of money. To add icing to the cake, a congressional order passed last year forbids Obamacare from borrowing federal money to cover the costs associated with the risk corridor.

Image source: Social Security Administration.

What does this mean for you?
You might be wondering what the failure of Obamacare's co-ops and the struggle to provide risk corridor payments might mean for you and millions of other Americans enrolled in Obamacare.

Considering that most co-ops are losing money, it's possible that we could continue to see more of them winding down operations. If that happens, we'll see more Americans forced to find new plans.

However, we could also see something of a knee-jerk effect on premium pricing. On one hand, we might expect premium prices to rise as fewer plans remain on Obamacare exchanges in lieu of co-ops folding up shop. Less competition means established insurers will have less trouble pricing their plans to turn a profit. Then again, less competition and higher enrollment for established insurers, sans the competition of co-ops, could help minimize premium cost inflation in the upcoming years. So long as the established insurance corporations are turning a profit (and many are), dramatically raising premiums may not be necessary. In short, I'd view this as a win-win for national insurance companies.

For the consumer, it likely means we can expect premium prices to jump noticeably over the next year or two as some low-cost options disappear. However, as national insurers establish their foothold, those premiums could stabilize. Wild cards, such as the rising cost of prescription drugs, could actually end up playing a bigger role in determining consumer premiums in the upcoming years than the adverse effects of the risk corridor and co-ops folding up shop combined.

Either way, this is an issue worth keeping a close eye on, especially as we head into election season.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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