A few months ago I wrote about the Obamacare cooperative health plans pointing out the similarity to HMOs back in the late 1970s when the federal government provided startup funding and loans to plans; many of which were community-based non-profit organizations and many, if not most, of which ended up bankrupt or gobbled up by for profit companies. Profit and the discipline and rigor needed to achieve it has its value even in health care.
Now we are hearing that many of the co-ops part of Obamacare are heading in the same direction as the old HMOs. The idea that just because an entity is labeled non-profit means it can provide health care services cheaper is false and is also much more difficult to achieve because of the community, non-profit mentality that often impedes sound business decisions.
I admit the article referenced below is a bit one-sided and anti Obamacare. However, the basic flaw with these cooperative plans is factual and billions of dollars of taxpayer money are at risk. Guess what these plans must do to thrive? They must enroll a large number of new members fast and/or raise premiums just to play catchup.
S&P writes: “All but one of the [23] co-ops included in our study reported negative net income through the first three quarters of 2014. … Most co-ops’ weak operating performance is a result of high medical claims trend and not enough scale to offset administrative costs. … In fact, nine of the co-ops (including CoOportunity Health) reported a MLR [i.e., medical loss ratio; the claims compared to premiums] of 100% or more through September 2014.”
In short, the co-ops are leaking money faster than an Obama green energy project, or Obama’s student loan program. Some are even spending more on claims than they’re receiving in premiums—the MLR—and that’s before any administrative costs.
The Wall Street Journal reported in January, “Iowa’s insurance regulator plans to shut down insurer CoOportunity Health, marking the first failure of one of the nonprofit cooperatives created under the Affordable Care Act. … CoOportunity had been seen as one of the most successful coops in terms of enrollment volume, but according to the Iowa regulator, the insurer’s large pool of sign-ups created financial pressures as their health-care costs outran its funds.”
via Busted: Obamacare Co-Ops Are Underwater And Sinking Fast.
Source:Standard & Poors
And then from the New York Times 2-16-15
RED OAK, Iowa — A few days after Christmas, Lisa Lovig’s doctor called with jarring news. The health insurer covering her cancer treatments had run out of money, and its future was at best uncertain.
“I was terrified,” said Ms. Lovig, 59, who has pancreatic cancer and relies on her insurance to cover frequent doctor appointments, tests and a litany of expensive drugs. “I didn’t know what was going to happen to me.”
Her insurer, CoOportunity Health, was one of 23 nonprofit cooperatives created under the Affordable Care Act to generate more competition and choice in insurance markets dominated by huge for-profit companies. Many of these newcomers to the industry, seeded with hundreds of millions of dollars in federal loans, struggled to attract customers after the law’s online insurance exchanges opened in 2013. But CoOportunity had seemed to flourish, with over 120,000 customers in Iowa and Nebraska — far more than the 15,000 it had anticipated — by the end of last year.
Its success apparently helped doom it. CoOportunity’s many customers needed more medical care than expected, according to Nick Gerhart, Iowa’s insurance commissioner, and it had priced its plans too low. After taking control of the co-op in late December, Mr. Gerhart decided last month that it could not be saved and asked a court to liquidate it. The co-op, he said at the time, faced more than $150 million in liabilities. That left its customers scrambling for new coverage, and health care providers wondering if millions of dollars in outstanding claims would ever get paid.
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