A Vermont regulator said today organizers of a proposed Obamacare health insurance co-op who claimed last week they were "blindsided" were told "from the beginning" of problems with their application to operate in the state.

"Well, I don't know quite what to make of the remark because, as regulators, we were very clear right from the beginning there were some initial missteps," Vermont Insurance Commissioner Susan Donegan told The Washington Examiner.

Vermont Health CO-OP chief executive officer Christine Oliver told reporters last week that she and her colleagues were "blindsided" by Donegan's denial of their application for a license to sell health insurance in the state.

Donegan's decision was the first major setback dealt by a state regulator to one of 24 new health insurance cooperatives being started in states across the country with funds authorized by Obamacare.

Nearly $2 billion has been spent by federal officials on the program thus far, including $33 million to Vermont Health CO-OP, even though a White House Office of Management and Budget study predicted that as many as 40 percent of the startup co-ops would fail.

House Oversight and Government Reform Committee Chairman Darrell Issa, R-CA, told The Washington Examiner that he's worried about what the Vermont decision may signal about problems with some of the other 23 new co-ops.

"The Insurance Commissioner's report on the Vermont Health CO-OP is troubling and raises more questions about the CO-OP program as a whole. Almost $2 billion taxpayer dollars are on the line, yet we still know very little about why and how these companies were selected for taxpayer-backed loans. The viability of the Vermont Health CO-OP deepens my concerns that the selection process was both opaque and flawed," Issa said.

Earlier this year, the National Conference of State Legislatures warned that "health insurance purchasing cooperatives are unsuccessful because of their inability to gain market share."

Whatever happens at the federal level or in other states, the Vermont co-op's future may now be in doubt because "you do not put an insurance company that has slight chance of success into this market," Donegan said.

Donegan said her actuaries quickly identified solvency and low enrollment as Vermont Health CO-OP's main survivability issues.

"As for my actuarial folks and my rates folks, it became clear early on that those were not sustainable and justifiable numbers and we indicated that to the co-op.," she told The Washington Examiner.

Oliver - who did not return a reporter's telephone calls seeking comment - claimed last that their projections were "placeholders" that could be changed later. Donegan said the co-op offered regulators two set of rates, but her actuaries rejected both.

"Those numbers did not support the types of actuarial analysis and justification that we felt was going to make this a viable company," Donegan said.

Donegan rejected Oliver's "placeholder" claim, saying, "Blue Cross Blue Shield submitted their rates. They weren't placeholders. You don't get to have a moving target for rates."

Donegan also blasted as "illegal" a sweetheart deal in which Vermont Health CO-OP's president, Mitchell Fleischer, issued a sole-source contract to his own firm worth up to $500,000.

Donegan said the co-op refused to alter the contract. "They did not change, did not amend the contract," she said. "If I let a company start with what I see as conflicts of interest and questionable practices, well, where is it going to go?"

Oliver has threatened to appeal Donegan's decision to Gov. Peter Shumlin, for whom she formerly worked in a political job, but Donegan was unfazed by the prospect.

"Did I feel any pressure? No I did not feel any pressure," she told The Washington Examiner. "Gov. Shumlin has been apprised of the developments for this application and he said for me to do my regulatory job."

Oliver's co-op can appeal to the Vermont Supreme Court within 30 days of the May 22 rejection.

Donegan said the court review would be "a very narrow assessment" to determine whether regulators were grossly negligent. "I think they would have to have shown serious error in my decision," which she said is unlikely.

"You can see the way I crafted the order, that it really fell on solvency and corporate governances," Donegan said.