Co-ops reflect the callous deception of Congress

PNHP
Quote of the Day
July 18, 2011
CO-OP (Consumer Operated and Oriented Plan) Health Plans under the
Affordable Care Act

From the comment by Don McCanne:

The proposed rule has now been released for the establishment of CO-OPs
under the Affordable Care Act. The CO-OPs are private, nonprofit
organizations that sell insurance, like HMOs and PPOs, under the same
rules as the other private insurers. The most important difference is
that a CO-OP is controlled by a board of directors that is elected by
the individuals enrolled in the CO-OP.

These are new organizations, and, as such, require a new infusion of
capital to meet the reserve requirements for future claims. These are
the same requirements that have been established by the states for other
private insurers already competing in the marketplace.

Private, for-profit insurers have the capability of establishing
start-up costs and solvency reserves by selling shares of stock. Since
the CO-OPs are nonprofit, they don't have this resource to tap.
Recognizing this, the Affordable Care Act included provisions for
government loans for start-up costs and other loans for solvency
(reserve funds for future claims). It is important to understand that
these are not grants but are loans that must be repaid, with interest,
within five years for start-up loans and fifteen years for solvency loans.

Think about that. The CO-OPs are required to compete with the private
insurers under the same terms, while having the additional requirement
of paying back these loans. Since their only revenue source is premiums
for the insurance they are selling, these loan costs that their
competitors don't have will have to be recovered through higher
premiums. Under these terms, how could they possibly compete with the
private insurers?

There are many other issues. How long would it take to establish a
critical threshold of enrolling enough members to create a viable
entity? Since it is likely that the CO-OPs would be subject to adverse
selection (enrolling a larger share of patients with greater health care
needs), there would be further upward pressure on their premiums (death
spiral) since current risk adjustment tools do not recover the full
excess losses (as if health care is a "loss").

It's too bad. CO-OPs should have offered us the opportunity to establish
altruistic health care organizations. Instead, the politicians bent over
backwards not only to keep the government out of these programs, but
also to protect the private insurers' marketplace by being sure that the
CO-OPs were not allowed a fair playing field by saddling them with
insurmountable debt.

We needed a seat at the table.

http://www.pnhp.org/news/2011/july/co-op-consumer-operated-and-oriented-plan-health-plans-under-the-affordable-care-act

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NPR/Kaiser Health News
January 14, 2015
Health Insurance Startup Collapses In Iowa
By Clay Masters, Iowa Public Radio

CoOportunity Health has failed. The Affordable Care Act set aside
funding for health care co-ops, to enable the organizations to compete
in places where there aren't many insurers. CoOportunity Health was the
second largest co-op in the country in terms of membership, and one of
the largest in terms of the federal funding it received.

But then CoOportunity hit a kind of perfect storm, says Peter Damiano,
director of the University of Iowa's public policy center. First, the
co-op had to pay a lot more medical bills than those in charge expected.

"CoOportunity Health's pool of people was larger than expected, was
sicker than expected," Damiano says. "So their risk became much greater
than the funds that were available,"

When the Obama administration in late 2013 allowed people to keep the
insurance plan they already had, many customers happy with Wellmark
stayed put. Damiano says this meant many of the customers who flocked to
CoOportunity tended to be… people with expensive health problems who'd
had trouble paying for insurance before, in the market Wellmark dominated.

"It was always going to be a challenging market to try to reach," says
Damiano, "and on top of that, the whole idea of co-ops was relatively
new and experimental. But it was to try to create competition, on that
private sector approach," says Damiano.

According to Nick Gerhart, Iowa's insurance commissioner… the co-op
thought it was going to get more federal money. "On December 16 around 4
o'clock we were informed they weren't going to get any further funding,"
he says. "Nothing was pulled — it just wasn't extended further."

"Ours was the second largest in the country, so you've got to look at it
that way." Gerhart says. "If the second largest can't make it, how
viable are the other ones? I don't know. But at the end of the day they
didn't have enough capital to support 120,000 members."

http://kaiserhealthnews.org/news/health-insurance-startup-collapses-in-iowa/

****


Comment by Don McCanne

Those of us who watched closely as the health care reform process
unfolded were outraged by many of the decisions made by the members of
Congress. As single payer supporters we were denied a seat at the table.
Regardless, we still tried to inform the process but we were routinely
ignored. "What you guys want is just not politically feasible."

Look what I wrote July 18, 2011: "It's too bad. CO-OPs should have
offered us the opportunity to establish altruistic health care
organizations. Instead, the politicians bent over backwards not only to
keep the government out of these programs, but also to protect the
private insurers' marketplace by being sure that the CO-OPs were not
allowed a fair playing field by saddling them with insurmountable debt."

Now look at what happened to CoOportunity - the second largest co-op in
the country. Not only did they enroll patients with greater health care
needs, as we predicted, but the government loans were inadequate to
maintain its viability. The success in enrolling large numbers of
members accelerated the demise of this co-op, but what about the others?
With the premiums they receive, how will they be able to pay for the
health care services of a higher risk population plus service their
loans at the same time - loans that competing private insurers do not
have to face?

It isn't that we didn't know how to design a proper health care
financing program. We clearly did - single payer. What is tragic is that
the Affordable Care Act was designed to take special care of the private
insurance industry while supposedly showing some vague, deceptive
semblance of improving access and affordability for the patients served,
though caring for patients was certainly a lower priority than catering
to the private insurers.

With 30 million people being left uninsured, and with the establishment
of a new insurance standard of unaffordable under-insurance, our members
of Congress sure did a crappy job - not just crappy but far worse - it
was callous and inhumane.