From NAIC Newswire:
The Centers for Medicare & Medicaid Services (CMS) announced that the Kentucky Health Cooperative — one of the biggest insurance providers on the state’s health exchange — received a $65 million federal loan in November to keep it afloat. CMS says more than $355 million in additional solvency loans were given to co-ops in seven other states. While the loans have garnered criticism from U.S. Sen. Mitch McConnell (R-Ky.), experts contend that the loans enable the co-ops to meet state requirements for the amount of cash on hand to pay claims. According to Kentucky Insurance Commissioner Sharon Clark, “They are a new startup companies. They do not have parent companies, per se, that could push money down to them. There were a lot of unknowns. … So the federal government put several mechanisms in place to try to address any issues like cash flow or to adjust for the risk.”
The idea behind these co-ops is similar to the old HMOs of the 1980s, they are non-profit, they are consumer run (whatever that means) and because they are newly organized they need seed money. In both cases that money comes from the federal government in the form of grants or loans.
Of course the reasoning is that because they are non-profit they will charge less than other insurers. The problems today are the same as they were thirty years ago.
Having been on the boards of directors of five non-profit HMOs back in the 80s, the first problem is that so-called consumers with a non-profit community focused mentality aren’t equipped to make the hard business decisions necessary for success. The second problem is that these organizations face the same issues related to health care costs as any insurer so their ability to actually offer lower premiums is limited, very limited. While they don’t strive for a profit (which is a small percentage of any premium), they are burdened by large loans (backed by you) with no corporate safety net or the ability to raise capital.
As far as premiums go, a quick check on healthcare.gov comparing premiums of co-op plans with other insurers show only minor premium differences, often two or three dollars a month and in some cases the co-op is actually slightly higher.
The challenge for co-ops is to generate sufficient cash to pay claims and expenses, to accumulate reserves as required for any insurer and to repay loans while keeping premiums lower than competitors. That’s quite a challenge that requires a substantial and growing enrollment of average or below average risk members.
QUINNSCOMMENTARY 