CO-OP (Consumer Operated and Oriented Plan) Health Plans under the Affordable Care Act
PNHP, Quote of the Day, July 18, 2011
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.
https://www.pnhp.org/news/2011/july/co-op-consumer-operated-and-oriented-plan-health-plans-under-the-affordable-care-act
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Health Insurance Startup Collapses In Iowa
By Clay Masters, Iowa Public Radio
NPR/Kaiser Health News, January 14, 2015
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 arenât 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 Iowaâs public policy center. First, the co-op had to pay a lot more medical bills than those in charge expected.
âCoOportunity Healthâs pool of people was larger than expected, was sicker than expected,â Damiano says. âSo their risk became much greater than the funds that were available,â
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 whoâd had trouble paying for insurance before, in the market Wellmark dominated.
âIt was always going to be a challenging market to try to reach,â says Damiano, âand 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,â says Damiano.
According to Nick Gerhart, Iowaâs insurance commissioner⊠the co-op thought it was going to get more federal money. âOn December 16 around 4 oâclock we were informed they werenât going to get any further funding,â he says. âNothing was pulled â it just wasnât extended further.â
âOurs was the second largest in the country, so youâve got to look at it that way.â Gerhart says. âIf the second largest canât make it, how viable are the other ones? I donât know. But at the end of the day they didnât have enough capital to support 120,000 members.â
http://kaiserhealthnews.org/news/health-insurance-startup-collapses-in-iowa/
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Comment:
By Don McCanne, MD
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. âWhat you guys want is just not politically feasible.â
Look what I wrote July 18, 2011: âIt’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.â
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 isnât that we didnât 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.