The Co-op scam

[Guest guest]

Health Co-ops:

The Three-card Monte of Healthcare Reform

 

http://www.newsforreal.com/

 

Feel the fool? Well, you should. Or at least you will if you let them get away

with the latest health care reform bait and switch.

 

This weekend the Obama administration backed away from the public health

insurance option. Instead they say they are open to " health insurance

cooperatives, " instead.

 

Let me be as clear as I can be here; accepting health insurance co-ops over a

government-run health insurance system is like trading an modest annuity for a

Nigerian bank scam. And it's not just me saying that.

 

Take a recent study completed by the Commonwealth Fund on the pros and cons of

health insurance co-ops. Here's a link to the full pdf file, but here are the

highlights of that paper:

 

 

 

The key advantage attributed to purchasing cooperatives is risk-pooling...by

joining together, small employers (and individuals) can spread risk by pooling.

Unfortunately, this advantage can seldom be realized in practice...(because)

insurers to use risk-rating to set premiums for firms that buy coverage outside

of the co-op lower-risk employers will typically find it more advantageous to

buy coverage in the outside market, since they will be offered a price that

reflects their lower risk profile. When that happens the average level of risk

of the employers remaining in the purchasing cooperative rise, and the cost of

coverage will rise in turn. This will set off a chain reaction of spiraling

prices andemployers bailing out of the co-op, destroying the pool's viability.

 

It's Been Tried Already

In practice, purchasing cooperatives have not always met expectations. Although

there are certainly

successful models, there have also been some notable failures. In real-life

trials, a significant proportion of co-ops have failed. The failures have

included co-ops that initially seemed to be quite successful:

 

 

-The demise of the Florida Community Health Purchasing Alliances was perhaps

the most notable failure because the co-op had once seemed quite successful.

Originally a state-created consortium of 11 separate alliances, the cooperatives

enrolled 92,000 people when enrollment peaked in 1998. But over the years, the

Florida alliances had increasing difficulty attracting any but the smallest

employers and gradually found themselves losing health plans. As a consequence,

enrollment also fell, and the purchasing alliances ceased operations in 2000.

 

- The Texas Insurance Purchasing Alliance, begun in 1994, never reached the

enrollment levels

of the Florida effort, covering only about 1,000 firms and 13,000 people at its

height. Difficulty in

attracting employers led to the withdrawal of health plans, and the Alliance

governing board

ultimately decided that the operation was not viable and closed it down.

 

The North Carolina Purchasing Alliances, which opened for enrollment in 1995,

were patterned after the Florida model, but they struggled to attract employers

throughout their existence, and the leaders finally admitted defeat in 2000.

 

The Alliance in Colorado, established in 1995, the Alliance closed in the summer

of 2002 after one of its three health plans withdrew from the state small-group

market, a second capped enrollment, and the last decided to stop participating.

 

 

Co-ops will Compete on Quality

Proponents sometimes assumed that if a co-op offered a high-quality, high-value

product, it would more or less sell itself. That assumption proved to be

incorrect. Selling health insurance of any kind in the small-group market is

extremely difficult without the cooperation and even enthusiastic support of

insurance agents and brokers. Early efforts to save the cost of commissions by

diminishing agents' roles or eliminating them altogether backfired. Insurance

agents not only did not sell purchasing co-op plans, they also became strong and

effective opponents of the concept

 

Co-ops Can Compete on Price

Early proponents of cooperatives also hoped that these new organizations could

offer prices somewhat lower than were generally available in the market. This

hope was not fulfilled. With very few exceptions, premiums for employers buying

through co-ops have not been lower than thoseavailable to small employers

elsewhere. This failure to realize the expected price advantage is attributable

to several factors:

 

Co-ops have not been able to reduce administrative costs. They have not had

enough market share to bargain for discounts. And in many instances state laws

have prohibited insurers from offering co-ops premiums lower than those they

charge to employers outside the coop, even if the insurers' costs are lower for

co-ops.

 

Co-ops Can Cover the Uninsured

Many supporters hoped that purchasing coops would attract a large number of

employers who had not previously offered coverage. The prospects for success in

this area were dimmed by co-ops' inability to offer lower premiums. Even if

co-ops had realized price reductions, however, most uninsured small employers

would still not have been induced to offer coverage to their employees. The

research evidence shows that even a 30 percent reduction in premiums-far more

than co-ops could be expected to produce-would cause only 15 percent of

currently uninsured small employers to offer coverage.

 

An analysis of the efforts to implement the purchasing cooperative model yields

the following lessons:

 

 

1. The principal advantage that current co-ops offer to small employers is not

lower premiums but the opportunity for individual employees to select different

health plans from the variety the co-op

offers.

 

2. In the future, co-ops might be able to offer more attractive prices, but that

would depend on reaching " critical mass " size. To offer attractive prices, a

co-op has to be able to realize administrative savings and/or have bargaining

leverage with health plans. Both these conditions require that co-ops

control significant market share.

 

3. (But) Achieving critical mass size is difficult. To persuade a number of

health plans to participate and continue participating, a co-op must have a

significant market share. But without the participation of a variety of highly

reputable plans, it will be difficult for co-ops to attract the number of

employers that would yield a significant market share. Furthermore, co-ops do

not sell themselves. Without the support of (private, for profit) health plans

and insurance agents, small employers will not seek out co-op coverage. But

health plans and agents have often been hostile or, at best, indifferent, to the

co-op model.

 

4. Even if co-ops could offer lower premiums, (which so far they have not) they

would not substantially reduce the number of uninsured because the premium

reductions would not be big enough to induce large numbers of uninsured

employers and uninsured workers to opt for coverage.

 

5. Co-ops cannot be the vehicle for pooling high-risk, low-risk, and medium-risk

employers. If co-ops follow (existing) premium rating rules or rules for

accepting applicants that are significantly more permissive than those that

apply in the outside (for profit) market, they will suffer from adverse

selection and ultimately fail.

 

6.Co-ops are likely to become an important source of health coverage only if

some significant change makes them the favored or perhaps renders them the sole

source of coverage for particular groups (AKA.. the public option) This could

happen... if government offered co-ops as the source of coverage for individuals

who receive certain kinds of subsidies. Without a change of this sort,

purchasing cooperatives are unlikely to become a major feature on the health

care landscape.

 

 

So, pick a card, any card. But be warned, under none of the cards being hawked

as a " comprise " will turn up a winner for you, or me, or our kids, or their

kids. Without a strong, undiluted public health insurance option the same people

who run the health insurance universe today will own it tomorrow, and all the

tomorrows that follow.

 

Let your member of Congress know: