Two years ago I wrote this about the glowing predictions that consumer-run health insurance co-ops under Obamacare would have lower premiums and save money. They were backed by hundreds of millions of dollars in federal loans. My prediction was not especially insightful because in the 1980s I had seen and participated in the same scenario only they were called HMOs and all the consumer-run, non-profit, idealistic plans failed.
Remove the profit motive and you remove the reasons to care about costs and run things efficiently. It’s really that simple. Why do you think so many charities actually use only a small portion of their receipts on their stated cause? And then there is the fact, often buried in political rhetoric, that only a small percentage of insurance premiums represent insurance company profits.
Another ObamaCare Dream Goes Bust – WSJ.
Health-care cooperatives last year suffered an estimated $377 million in net underwriting losses.
The Affordable Care Act created a new kind of “cooperative” heralded by supporters of health reform. These Consumer Operated and Oriented Plans, chartered and regulated by the states, would compete with for-profit health-insurance companies and were meant to appease disgruntled advocates of a single-payer and “public option” model for the nation’s health-care system.
All but one of the co-ops are operating in the red. One already has been shut down, and others are in precarious financial condition. Chalk up another ObamaCare failure.
Generous federal loans helped 23 cooperatives to get up and running. They have enrolled more than a million people, according to the National Alliance of State Health Co-ops. Their supporters believed that consumer cooperatives, which must meet the same regulatory requirements as private insurers, would provide better benefits and lower prices than commercial carriers.
In practice, most co-ops have significantly underpriced premiums and grossly underestimated medical claims. Many seek significant premium increases for 2016: 58% for individual plans in Utah, 38% in Oregon and 25% in Kentucky, for example.
Iowa’s CoOportunity Health, which operated in both Iowa and Nebraska, was the first to confront the hard reality of insurance economics as medical claims far outpaced premium income. After the co-op burned through $145 million in federal loans, an Iowa state court in February ordered the organization to be liquidated.
At least 120,000 members were forced to quickly find coverage elsewhere. The Iowa Insurance Division had this helpful advice: “Your coverage with CoOportunity Health will stop, and claims will not be paid after cancellation. If you do not purchase replacement insurance, you may be penalized by the federal government.”
Meanwhile, Standard & Poor’s Ratings Services reported early this year that 10 co-ops had worse loss ratios than Iowa’s in the third quarter of 2014 resulting from a “high medical claims trend and not enough scale to offset administrative costs.” Citing Iowa’s experience, the report warned: “The solvency problems experienced by CoOportunity Health introduce questions about co-ops’ finances in general.”
A separate analysis by the insurance-rating agency A.M. Best expressed concerns “about the financial viability of several of these plans” as losses escalated throughout 2014. Other estimates based on quarterly financial statements filed with the National Association of Insurance Commissioners show co-ops as a whole reported net underwriting losses of $377 million in 2014. Only Maine’s Community Health Options has been operating in the black. Wall Street Journal 6-24-15
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