Obamacare mandates CO-OP health insurance plans effective July 2013 … a new idea you say?

Come July 2013 the Affordable Care Act calls for the establishment of CO-OP health insurance plans that are private, consumer-governed and non-profit. They are to be in each state and one option within the health insurance exchanges.

Call me cynical (or anything else that comes to mind) but we have heard this song before. Are you old enough to remember the HMO Act of 1973? The law was introduced by Sen. Edward Kennedy and was supposed to save money, improve quality and introduce competition to fee-for-service medicine. The Act allocated $375,000,000 for grants, loans and such ($1,941,005,067.57 in 2012 dollars). I was part of that effort and aided in the establishment of nearly a dozen HMOs. In the 1980s I was on the Boards of four plans. HMOs, mostly on the west coast, had been successful for years before the 1973 Act and still are. The 1973 Act mandated employers offer the HMO option and directed HHS to study health care quality assurance programs. Of the twelve plans I am familiar with none improved quality or contained costs and all eventually went bankrupt or simply went out of business.

Collectively, it’s hard to make the case that HMOs had any significant impact on the cost or quality of health care in the US. In fact, while the basic concept of managed care and pre-paid health services is valid, consumers and employers forced the concept to be so watered down because of the restrictions that come with it, the HMO (with notable exceptions for older plans) became little more than fee-for-service by another name. In essence, this expensive grand plan by the federal government to partner with the private sector was a bust … surprise, surprise.

Here is what President Nixon said upon signing the HMO Act in 1973. Do any of his words sound familiar today?

IT IS with great pleasure that I today sign into law S. 14, the Health Maintenance Organization Act of 1973. This legislation will enable the Federal Government to help demonstrate the feasibility of the HMO concept over the next 5 years.

Expanding the geographic distribution of health maintenance organizations is an integral part of the National Health Strategy that I first proposed nearly 3 years ago. S. 14 is somewhat broader than the Administration’s proposal, but it nevertheless contains the essential concepts and principles that I support. It will provide initial Federal development assistance for a limited number of demonstration projects, with the intention that they become self-sufficient within fixed periods.

The national health insurance bill that I will be submitting to the next session of this Congress will allow patients to use such insurance to join HMO’s. For that reason, it is particularly important that this demonstration effort get underway immediately and build upon the momentum which has already been achieved in this field.

Health maintenance organizations provide health care to their members on a prepaid basis with emphasis on essential preventive services. The establishment of HMO’s will allow people to select for themselves either a prepaid system for obtaining health services or the more traditional approach which has served the American people so well over the years.

The Health Maintenance Organization Act makes Federal demonstration assistance available both to organized group practices and to medical foundations which provide prepaid care, further encouraging a diversified medical care system. HMO’s which receive assistance under this act would agree to provide a comprehensive package of basic benefits, including essential preventive services, along with a list of supplemental benefits for which the enrollee could make an extra payment.

Under S. 14, the Government would provide financial assistance to help various groups determine the feasibility of developing an HMO in their area, as well as assistance for planning and initial development. HMO’s would be required to operate competitively without Federal subsidies at the end of an initial period of Federal support.

S. 14 represents one response to the challenge of finding new. and better ways to improve health care for the people of this country. It will build on the partnership that exists between the Federal and private sector by allowing both the provider and the consumer of health services to exercise the widest possible freedom of choice.

The signing of this act marks another milestone in this Administration’s national health strategy. The major task of providing financial access to health services should be addressed in the next session of this Congress with the enactment of an appropriate and responsive national health insurance act.

In 2012 we have our own version of the HMO, it’s called the Co-Op. Somehow non-profit, consumer – governed health insurance will provide higher quality, affordable care. Exactly how the governing consumers will accomplish that remains to be seen. If they intend to do so by not worrying about profit, they could be in for a shock because profit makes up a very small portion of insurance premiums. Did I mention that all the HMOs I was involved with we’re non-profit and included consumers on their Boards? Given the track record of consumer demands for unlimited, “free” health care, isn’t a consumer-governed insurance company like a fox in charge of hen house?

And who says non-profit is always the best route? According to Charity Watch, non-profit…

Charities have to file a form 990 with the IRS each year. They are easy to get but difficult to read. To get a good rating from a group -like http://www.guidestar.org the IRS and the BBB a charity should not spend more than 35% of what it makes on salaries, administration and the cost of raising money.

If I did the math correctly that’s equivalent to a loss ratio of 65%, fifteen percent less than Obamacare requires of health insurers. Yikes, and people give their money voluntarily to these inefficient non-profits!

Keep this in mind. Every time the consumer gets more choices in health insurance in a given area (a state in this case), the fee negotiating position of the insurers offering coverage is weaker and the fee negotiating position of health care providers is stronger. Let’s hope the consumers running the CO-OP understand that reality. Or, perhaps because the government is giving each plan nearly $100,000,000 to get started their job may be easier … for a time. Based on the regulation below it appears these “loans” have no limit, just the goal to have a CO-OP in each state.

Here is an excerpt from the HHS final regulations. On February 21, 2012, HHS announced that “seven non-profits offering coverage in eight states have been awarded $638,677,300.

Same tune, different lyrics.

I. Background

A. Overview of the Consumer Operated and Oriented Plan (CO–OP) Program

Section 1322 of the Affordable Care Act directs the Secretary to establish the CO–OP program to provide loans to foster the creation of new consumer- governed nonprofit health insurance issuers, referred to as CO–OPs, in every State. These new consumer-run, private, nonprofit insurers will be one vehicle for providing higher quality care that is affordable and uses innovative care models in the Exchanges starting in 2014.

The statute divides the CO–OP loans into two types: loans for start-up costs, to be repaid in 5 years (‘‘Start-up Loans’’), and loans to enable CO–OPs to meet State insurance solvency and reserve requirements, to be repaid in 15 years (‘‘Solvency Loans’’). Section 1322(b)(2)(A) of the Affordable Care Act directs CMS to ensure that there is sufficient funding to establish at least one CO–OP in each State and to give priority to organizations that can offer these CO–OP qualified health plans on a Statewide basis, provide integrated care, and have significant private support. Section 1301(a)(2) of the statute deems CO–OP qualified health plans offered by a qualified nonprofit health insurance issuer eligible to participate in the Exchanges. By creating more health plan choices, the CO–OP program can benefit all consumers.