What is happening to the Obamacare CO-OPs? I heard from several people this past fall who were subscribers to Health Republic Insurance of New York, which was one of 23 nonprofit alternatives to commercial health insurance. Health Republic shuttered on Nov. 30, leaving folks scrambling for other affordable coverage. It was the largest of the 12 such plans that closed last year.
Consumer Operated and Oriented Plans (CO-OPs) were what came about instead of a public option in the Affordable Care Act. The public option turned out to be a political impossibility, so these plans were the compromise. The idea was that nonprofits could sell policies at a lower cost than the large for-profit companies. The Centers for Medicaid and Medicare Services awarded loans on a competitive basis to the financially viable entities deemed most likely to succeed.
The CO-OPs were under pressure to keep their premiums low. Many, like Health Republic, were operating in expensive markets. Moreover, they were concentrating their services in the individual and small group markets which are riskier than larger groups because high healthcare costs from one or a few individuals can weigh heavily on a small group. At the same time, the relatively low premiums attracted sicker individuals, driving up the costs.
These plans and others participating in the state exchange markets are required to guarantee renewal of insurance without regard to pre-existing conditions. This and other new regulations exposed them to unknown future costs.
The CO-OPs were intended to be protected under the ACA by the risk corridor program, a system in which insurance companies whose subscribers are largely healthy pay into a fund that is then used to offset losses to plans with sicker populations. However, in September 2015, the claims for payouts from the fund totaled $2.87 billion, far exceeding the $362 million that insurance companies owed to the fund, causing the payouts to the distressed companies to be less than 13 cents on the dollar. Health and Human Services had planned to use money from its operating budget to make up the shortfall, but the 2015 Appropriations Bill prohibited it from doing so. This contributed to the failure of these plans.
Now the future of other CO-OPs and smaller for-profit companies remain in doubt. So where do we go from here?
The U.S. spends a third more on health care than the next highest country, Norway. The total national healthcare expenditure in 2015 came to $3 trillion which is about $9,523 per person and about 17.5 percent of GDP. New York State is second only to California in cost by state, making it a very expensive market. With costs climbing at such a staggering rate, insurance companies either raise premiums or go belly-up. An MRI costs $1,200 in Denver and $98 in Tokyo. A pill that costs $1.20 in Denver can cost 20 cents in London. There is overuse of MRI and CT scans, each of which do not guarantee a diagnosis and often overexpose patients to radiation – in addition to costing a lot of money. Medicare is prohibited by law from negotiating lower drug prices from pharmaceutical companies.
Medical providers are becoming conglomerates and smaller insurance companies are no match for them. Therefore, we see the merging of small companies into super-sized insurance companies to do battle with the super-sized providers. A few years ago, we watched the gargantuan Continuum Health Partners duke it out with United Healthcare over payment contracts. And medical billing is opaque, making it impossible to know ahead of time what a procedure will cost (see my Patient Alert, below). If nonprofit insurance companies are going to be viable, there will need to be serious work done on controlling costs at the point of service – which is to say, the doctor’s office or the hospital. There is more than one way to get there. We need to better recognize the problem if we want to solve it.
Martha Hyde is a multi-woodwind player who performs on Broadway. A member of Local 802, she is also a trustee on the Local 802 Health Benefits Fund. Contact her at EarMar4@verizon.net.