The sudden collapse of nonprofit health plans supported by tens of millions of dollars in Obamacare loans is igniting a new political wildfire over the health law — and it’s playing out in a tight gubernatorial race in Kentucky.

The recent demise of Kentucky Health Cooperative, a nonprofit startup seeded with federal loan dollars under the Affordable Care Act, is part of a bigger, national trend. More than a third of the 23 nonprofit health plans created under Obamacare with $2.4 billion in federal loan dollars have collapsed, and most experts predict more failures on the horizon. Late last week, South Carolina’s co-op became the ninth to fail, following similar crashes in Iowa, Louisiana, Nebraska and New York.


But Kentucky is in the spotlight because the co-op went bust earlier this month amid a high-stakes political contest and it is quickly becoming a wildcard issue. The Kentucky plan dominated exchange enrollment during the first two years of operations, capturing roughly 60 percent of customers in a red state hailed as a symbol of Obamacare’s potential. Those Kentuckians will now have to scramble to find new coverage during the looming open-enrollment period, beginning Nov. 1, just as voters head to the polls to pick a new governor.

"This financial debacle is a direct result of Obamacare,” said Republican challenger Matt Bevin, who seized on the failure earlier this month as a validation of his concerns about the landmark health care law and laid blame for it on his Democratic opponent, Attorney General Jack Conway.

“Even though it is a disaster for Kentucky taxpayers, Jack Conway still says he would have been proud to vote for Obamacare,” Bevin said in a statement.

Conway says the co-op's collapse was simply the result of "market forces," and argues Kentucky consumers still have more choice as a result of the health law — seven insurers to choose from this open-enrollment season, up from just three plans two years ago.

The nonprofit co-op program was devised as a way to placate liberals who were irate that the health care law didn’t include a government insurance option. Supporters say it was undermined from the outset, most notably when the original $6 billion funding was slashed by more than half. In addition, the plans were saddled with rules that prohibited them from using federal funds for marketing and restricted which customers they could go after.

“Insurance companies did everything they could to kill co-ops in the crib,” said former Democratic Sen. Kent Conrad, who originally proposed the co-op plan.

Republicans have seized on the failures as the result of ill-advised government meddling in the private insurance market and the latest evidence that Obamacare isn’t working. Last week, Nebraska Sen. Ben Sasse vowed to block all appointments to HHS until the agency explains why the startups are failing.

Two days later, Senate Majority Leader Mitch McConnell blasted the co-op program on the Senate floor.

“The administration knew beforehand that this plan was not viable and that tens of thousands of people could lose their coverage," the Kentucky Republican said. "They chose to cling fast to a disastrous left-wing experiment with our health care system ...”

Conway, meanwhile, has maintained a steady, but minuscule lead in the polls. The most recent surveys show him with leads of 5 and 2 percentage points. That means any minor change in the landscape could tilt the outcome, particularly in an off-year election where voter turnout is only expected to be around 30 percent. The Republican Governor's Association announced on Tuesday that it will spend $1.6 million on ad buys backing Bevin in the final two weeks.

“The whole business of health care in this election is so confusing to voters that Bevin might be able to use the demise of the co-op as an example of how Obamacare in Kentucky is not working,” said Al Cross, director of the University of Kentucky’s Institute for Rural Journalism and Community Issues. “That would be a very misleading example.”

“I don't know if the Bevin campaign can capture the wind and frame the issue,” added Kentucky Senate President Robert Stivers, a Republican and Bevin backer. “If they do, I think it will become very significant.”

The collapse of the co-op is not the only health care issue with political salience in the Kentucky governor’s race. The vast majority of Kentuckians who have gained coverage under Obamacare are enrolled in public programs, with more than 500,000 individuals added to the Medicaid and CHIP rolls since 2013.

During the Republican primary, Bevin was unequivocal about wanting to roll back Obamacare’s Medicaid expansion, a stance that helped him prevail in a fierce GOP primary in May. But that led Democrats to blast him for planning to abandon a half million low- and middle-income residents.

"When it comes to health care, there is a clear contrast in this race,” Conway said in a statement. "Matt Bevin has pledged to kick nearly 500,000 Kentuckians off of their health care on the first day of his administration, while I want to make sure that Kentuckians continue to have access to quality and affordable health care.”

Bevin has attempted to take a more nuanced stance in the general election. He wants the state to seek a waiver from the federal government enabling it to slash the cost of the program, while not entirely eliminating expanded coverage. But even Republicans concede Bevin has provided scant details about how he would accomplish that.

"It’s unclear exactly what his answer would be,” said Scott Lasley, a political science professor at Western Kentucky University and GOP activist. “There’s a lot of folks that are concerned about how that will play out.”

Some political observers are skeptical that health care issues, about which voters are notoriously uninformed, will ultimately prove decisive. They point out that much of the back and forth between candidates ends up as a wash in voters' minds.

“The regular voter has no idea who’s telling the truth,” said Stephen Voss, a political science professor at the University of Kentucky. “They can’t really parse out the details in the policy argument.”

But Scott Jennings, a veteran GOP strategist in the state, argues that voters are dealing with a triple Obamacare whammy that could alter the race. The collapse of the co-op, combined with plan cancellations due to the ACA’s coverage requirements and average rate hikes of roughly 13 percent for 2016 exchange plans have made voters uneasy, he contends.

“It’s been a roller coaster for people who aren’t on Medicaid,” Jennings said.