Co-ops On The Ropes

At the root of the CO-OP failures are soaring medical and prescription drug costs combined with the high cost of building a network of care providers, negotiating rates with them and then marketing their plans to customers.

This is from Fierce Health Payer

So, at the root of the problem is running a business just like any other insurance company?  

Actually at the root of the co-op problem is insufficient enrollment, adverse selection and the misguided and political assumption that not having profit dramatically lowers premiums; it doesn’t😎 All that and removing the profit motive and related accountability leads to bad business decisions… and losing a lot of (your) money. 


Categories: Government, Healthcare

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2 replies »

  1. I guess I am confused. Given how the co-ops were established, and who was selected, the introduction of co-ops into this market seems more like political patronage (think Solyndra). Or, perhaps a better comparison would be Elon Musk and Tesla, SolarCity and SpaceX which are thriving in part because they have received $4.9 billion in government commitments of support. The LA Times calls this emerging empire “… a “public-private” financing model underpinning long-shot start-ups. …” I think that description fits the co-ops – long-shot, start-ups, funded with grants and taxpayer subsidies, where, if successful, the profits go to the politically connected and where there is failure, the losses are socialized and born by taxpayers. It is a scam perfected by Democrats (remember the complaints about Halliburton?) so why would you expect anything less (more?) where we have a law that almost all Democrats and no Republican supported. Remember, these co-ops are dropping like flies after only two years of claims experience. Hell, the ink on the front door is just barely dry.

    Or, if you want an example in the insurance market, consider Citizens Insurance in Florida. The only reason it hasn’t bellied up is because Florida has not had any substantial hurricane activity for 10 years (Al Gore/Climate Change, where are you?). Maybe a good idea when private insurers started to reign in their exposure after Andrew, Wilma, Charley and Ivan hurricanes by pumping rates. In response, Former Governor Charlie Crist froze rates in 2007 to deliberately undercut the private market. So, insurers left Florida or curtailed their marketing – Allstate, USAA, Nationwide, Stare Farm, It got to the point where just a few years ago, Citizens had 22% of the market and $15 billion in assets which sounds good, except a storm like 1992 Andrew is projected to trigger $22+ Billion in losses. Policies in force cover $451 Billion in potential losses. That is, if we repeated a year like 2004, Florida will sink unless there is a federal taxpayer bailout. But, who shows up? The Republicans. In 2012, Governor Rick Scott confirmed Citizens had over $500B in risk and just $6B in cash reserves. Recognizing the challenge, Citizens has dropped over 25% of insureds/exposure in the past two years – now closer to $300B.

    In terms of health insurance company profits, it is my understanding that the big five insurers, including UHC, Aetna, the Blues, etc. have, as a group, seen noticeable improvements in profitability every year since PPACA 2010 became law in 2010. That is certainly reflected in their stock prices – UHC stock hit an all time high in 2015, and it stands at $118 a 400% increase since 3/23/10. For comparison, Health Net, Anthem and Aetna have increased 200 – 299%, while Cigna and Humana have increased 300+ percent.

    So, perhaps the co-ops were part of the deal to garner insurance company support – the real deal, the unspoken deal – for the co-ops to offer underpriced coverage to those who anticipated significant medical expenses so that they would not enroll in offerings by for-profit insurance companies. Remember, despite all of the cross currents of subsidies, risk corridors, etc., UHC has announced that after only ONE full year of claims experience, 2014, they are thinking about leaving the individual marketplace in the public exchange. If UHC can’t make a go of it, why would we think co-ops could thrive in this marketplace.

    But, for me, the greater question is why would anyone, at any time have thought inexperienced health insurance start-ups could compete? It is that fact alone that makes me think this was more political positioning and patronage than any real effort to create competition in the health insurance market.


    • All that and the experience of HMOs doing exactly the same thing was available to consider. I was on the Boards of five HMOs, all of which went under after a couple of years and federal money ran out.


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