(Bloomberg) -- Failing insurers. Rising premiums. Financiallosses. The deteriorating Obamacare market that the healthinsurance industry feared is here.

As concerns about the survival of the Affordable Care Act’s marketsintensify, the role of nonprofit “co-op” health insurers -- meantto broaden choices under the law -- has gained prominence. Most ofthe original 23 co-ops have failed, dumping more than 800,000members back onto the ACA markets over the last two years.

Many of those thousands of people were sicker and more expensivethan the remaining insurers expected -- and they’re hurtingresults.

With more of the nonprofits on the brink of folding, thesituation for the remaining providers looks dire. Anthem Inc., forexample, is facing an estimated $300 million in losses on itsexchange business for individual plansthis year, after turning a profit in 2014 and almost breaking evenon the program in 2015, according to the company.

“These co-ops have attracted, we think, disproportionately highhealth-care utilizers,” Gary Taylor, an analyst with JPMorgan whofollows the industry, said in a telephone interview. Theirformer members “are now enrolled in these for-profit health plans.That’s been a factor driving the deterioration in theirprofitability.”

‘Death spiral’

Large insurers including Aetna Inc.and UnitedHealth Group Inc. have already pulled back fromObamacare’s markets, citing losses. Anthem has said it remainscommitted to the program.

“Are we in an Obamacare ‘death spiral?’” health insuranceconsultant Robert Laszewski asked in a Sept. 9 bulletin to clients,where he described the grim scenario. In a death spiral, asoptions for coverage shrink, insurers attract increasingly sickpatients and suffer losses. That forces them to raise rates,driving away healthy, profitable customers. Facing more losses,they raise rates again, causing more healthy people to leave, andso on -- until all that’s left are high premiums and a small poolof the unwell.

People getting insurance in the ACA markets still have access toaffordable plans, said Aaron Albright, a spokesman for the Centersfor Medicare and Medicaid Services, which oversees the health-careprogram.

“America is on stronger footing today because of the AffordableCare Act with 20 million gaining health coverage and the uninsuredrate is at the lowest point on record,” he said in an e-mail.“Consumers are satisfied with their coverage, have better access tocare, and greater financial security -- core metrics ofsuccess.”

Disproportionate share

Some insurers may already be feeling the burden of increasinglysick patients. Anthem’s then-Chief Financial Officer WayneDeVeydt said in April the company was “disproportionately pickingup market share” in states where co-ops had folded. On a Julyconference call, Chief Executive Officer Joseph Swedish saidthat as the insurer had brought in new membership, its costs ofcaring for patients with heart disease, diabetes and especiallydialysis had increased. Jill Becher, an Anthem spokeswoman, saidthe CEO’s comments referred to the company’s overall ACAmembership.

The company expects to break even on its ACA business next yearand return it to profitability in 2018, Swedish said lastweek at a conference in New York. Still, some analysts aren’tconvinced. David Windley, an analyst at Jefferies LLC, cut hisrating on Sept. 13 to “hold” from “buy,” citing in partAnthem’s “potential to inherit sick members from peers exitingexchanges.”

Aetna and Humana Inc. are each on track to lose at least $300million on Obamacare this year and have joined rivals in leavingmany areas where they sell ACA plans. The broad retreat of payers-- including co-ops -- “is one of the contributing factors to ourinability to responsibly maintain our current footprint,” T.J.Crawford, an Aetna spokesman, said by phone.

Many miscalculations

Representatives of Humana didn’t respond to calls seekingcomment. Tyler Mason, a spokesman for UnitedHealth, declined tocomment. Both insurers sold Obamacare coverage in states whereco-ops have closed, according to data compiled by BloombergIntelligence analyst Jason McGorman.

The demise of 17 of the 23 original co-ops came after manymiscalculations. The nonprofits priced plans lower than privateinsurers in many states, attracting large memberships that exceededenrollment projections by as much as three times, according toScott Harrington, a professor of insurance and risk management atthe University of Pennsylvania’s Wharton School.

As enrollments rose, so did costs. In states like Kentucky,Nevada and South Carolina, co-ops struggled with members who hadnever before had coverage and required more treatments, formerexecutives said.

South Carolina’s co-op patients “skewed older and had highermedical needs,” said Jerry Burgess, who was chief executive of thenow-defunct Consumers’ Choice Health Insurance Co., in a telephoneinterview. “If we took in a dollar on premiums, we were spending adollar on medical expense. You can’t sustain that, you’re in a lossposition.”

Co-ops were also hurt by an ACA program intended to transferfunds from insurers with healthier customers to those with sickones, called “risk adjustment.” The program considered many of theco-ops’ members to be healthier than those with other insurers,though the co-ops say that’s not the case.

Because of risk adjustment, the co-ops were sometimes requiredto pay hefty sums to larger rivals. Some have sued federalofficials over the program, seeking to avoid making the payments.While Albright, the CMS spokesman, declined to comment on thelawsuits, the agency has proposed implementing some of theinsurers’ suggested changes.

It’s not clear whether the remaining co-ops can survive withoutadditional funding, said Deep Banerjee, an analyst with S&PGlobal. The nonprofit in New Jersey won’t sell policies next year,while Maine-based Community Health Options is pulling out of NewHampshire.

More exits

The co-op exits this year mean that at least 60,000 people willhave to pick new plans for 2017, according to data compiled byBloomberg. If all the remaining co-ops were to fail, itcould strand another 240,000 members, the data show. If thathappens, Anthem may shoulder even more of the burden, GoldmanSachs’s Matthew Borsch said Aug. 23 in a note to clients.

Given its large presence on the exchanges, Anthem might be “leftwith a more risk-imbalanced exchange population following exits bythe other public companies, and most of the remainingnot-for-profit ACA co-op plans,” Borsch said.

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.