On the very last page of the part of the fiscal cliff bill dealing with various Medicare extenders, the doc fix and other health care considerations, there is a provision which de-funds appropriations allowed in the Affordable Care Act for Community Operated and Owned Plans, or "co-ops".

The appropriations were for loans to be made to new, non-profit plans established by people who were not already health insurance providers, with a goal to increasing competition in the insurance marketplace.

Sarah Kliff at the Washington Post reports:

When Congress struck a deal to avert the fiscal cliff, it also dealt a quiet blow to President Obama’s health overhaul: The new law killed a multibillion-dollar program meant to boost health insurance competition by funding nonprofit health plans.

The decision to end funding for the Consumer Operated and Oriented Plans has left as many as 40 start-ups vying for federal dollars in limbo. Some are considering legal action against the Obama administration, after many spent upwards of $100,000 preparing their applications.

“Currently there are some things in motion,” said Robert Raasch, who had requested a multimillion-dollar loan to set up a nonprofit health plan in Oklahoma. “There may be some legal challenges or some legislative mechanisms we could use. All of that is in discussion.”

The Consumer Operated and Oriented Plan, or CO-OP, program was aimed at spending as much as $6 billion to help launch nonprofit health insurance carriers. It came into favor with Democrats when it became clear that a government-run plan, known as the public option, could not gain enough political support.

I'm going to disagree with that last paragraph a bit. Yes, this was intended to create an option that was non-profit, with 95 percent of premium dollars going toward actual health care expenses rather than padding the bottom line for profits. But this was not ever sold as or intended to create the impression that it was any sort of replacement or even consolation prize for the public option. . Despite Wendell Potter's belated endorsement of co-ops as a possible sleeper solution to the public option, there were many barriers to success to overcome.

The plan intended to take the place of the public option was and is the OPM alternative to be offered on all health insurance exchanges alongside commercial options, which is national in scope.

The right wing hates the OPM option and wishes they could kill it. It appears they had to settle for de-funding the loans to CO-OPs instead. Conservatives have long looked for ways to de-fund the ACA, and the CO-OPs were one of the first and primary targets. By conflating the Solyndra loan guarantees with the loan guarantees in the ACA, they managed to create enough negative energy to kill them in exchange for raising taxes, evidently.

Unfortunately, this has left a lot of people hanging out to dry in several states, just as they were ramping up their operations to be ready in 2014.

Kliffe writes:

The decision to end CO-OP funding has hit Robert Schyberg hard. Schyberg had submitted a request for $60 million to launch a plan in West Virginia. He estimates that his organization, HMO Affiliates, spent more than $100,000 preparing the application and numerous hours negotiating with hospitals and physicians, convincing the providers to join their nascent network.

On Nov. 13, Schyberg’s colleague received a letter from Medicare noting that they had “been selected to enter into discussions to potentially receive a loan or loans under the CO-OP Program for the State of West Virginia.” Schyberg said he had a meeting scheduled for the last week of December to finalize details of the loan. When it got pushed to Jan. 3, he did not think much of the one-week delay.

“New Year’s Eve happened, and everything changed,” he said.

His colleague received another letter from the Obama administration, on Jan. 9, saying “CMS no longer has authority to enter into new loan agreements with CO-OP applicants, including your organization.”

It appears the White House and Congressional Democrats weren't particularly averse to letting go of this single provision in order to get the tax issue put behind them. On the one hand, it doesn't seem like a dealbreaker on its face. On the other hand, they've now placed the ACA on the budget negotiation table, which increases its vulnerability in the upcoming budget showdown with repeal-hungry Republicans.

Killing these organizations was a concession to the large insurers. Here's how the National Review framed it:

Furthermore, several provisions in Section 1322 actually make it less likely that these co-ops will work. To start with, the legislation expressly prohibits the most likely and sensible path to setting up a co-op insurer, namely, a divestiture or conversion by an existing health insurer. Thus, neither an existing nonprofit health insurer (such as Kaiser Permanente) nor an existing stockholder-owned insurer (such as Aetna) could become a co-op under the provisions of Section 1322. Nor would either of them be allowed to spin off a portion of their existing business as a co-op. The only way to create one of the proposed co-op insurers is to start one from scratch — an inherently lengthy, uncertain, and expensive task.

Yes, of course. That is because these were intended to compete with the Kaisers and Aetnas of the world, which is exactly what they didn't want. Co-ops were barred from using federal grants for marketing and had the steep Medical Loss Ratio requirement of 95 percent, which would have made them lean and mean in the marketplace. Aetna in particular couldn't have that.