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Non-Profit, Private Health Care Co-Ops Killed in the CR

April 13, 2011 - by Donny Shaw

It has long been clear that congressional Republicans are interested in breaking the health care reform law, not improving it. They’ve already attempted to repeal it entirely and a recent press release from Speaker Rep. John Boehner [R, OH-8] describes, proudly, how the government funding deal that the Republicans negotiated “undermines” the law. Its a sensible strategy given that the Republicans don’t have enough control of the government right now to fully repeal it — if they can gut the law and make it fail, they’ll win politically and, so the thinking goes, gain the influence to enact a full repeal.

But, unfortunately, the strategy requires killing some of the best ideas with potential for broad support since they may make people actually like the law when it takes effect. A prime example is the “Consumer Operated and Oriented Plan” (Co-Op) provision that would provide start-up resources for member-owned, non-profit health insurance cooperatives to provide competition with private insurers and potentially drive down costs. This provision, which has yet to go into effect, would be repealed under the government funding bill that is currently making its way through Congress.

I encourage you to read through the legislative text establishing the co-op program and see what you think about the idea:

(1) IN GENERAL. The term qualified nonprofit health insurance issuer means a health insurance issuer that is an organization (A) that is organized under State law as a nonprofit, member corporation; (B) substantially all of the activities of which consist of the issuance of qualified health plans in the individual and small group markets in each State in which it is licensed to issue such plans; and © that meets the other requirements of this subsection.

(2) CERTAIN ORGANIZATIONS PROHIBITED. An organization shall not be treated as a qualified nonprofit health insurance issuer if (A) the organization or a related entity (or any predecessor of either) was a health insurance issuer on July 16, 2009; or (B) the organization is sponsored by a State or local government, any political subdivision thereof, or any instrumentality of such government or political subdivision.

(3) GOVERNANCE REQUIREMENTS. An organization shall not be treated as a qualified nonprofit health insurance issuer unless (A) the governance of the organization is subject to a majority vote of its members; (B) its governing documents incorporate ethics and conflict of interest standards protecting against insurance industry involvement and interference; and © as provided in regulations promulgated by the Secretary, the organization is required to operate with a strong consumer focus, including timeliness, responsiveness, and accountability to members.

(4) PROFITS INURE TO BENEFIT OF MEMBERS. An organization shall not be treated as a qualified nonprofit health insurance issuer unless any profits made by the organization are required to be used to lower premiums, to improve benefits, or for other programs intended to improve the quality of health care delivered to its members.

In sum, the co-ops can’t be affiliated with any government bodies, can’t be creations of existing insurance companies, must be internally governed by their members, and must use all profits for lowering premiums or inreasing benefits. It’s the kind of thing that very well may not work, but, if it does, could revolutionize the industry and provide enormous benefits to not just participants in the co-ops, but all consumers of health insurance. And it would do it a manner that is pro-competition, fully private, and fundamentally democratic.

Repealing this will mean that when health insurance consumers go onto one of the new exchanges to buy insurance, all they’ll see is the same old options the have now — Aetna, Blue Cross, Wellpoint, etc. Consumers want more options, and I think a lot of people would be very happy to get involved in something that doesn’t pit their health care against a profit motive and gives them a say in what kind of care their money buys. That, of course, is exactly why the Republicans want to repeal it. Happiness with health care reform is the bane of the Republicans’ electoral success.

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  • Denchod1 04/13/2011 6:05pm

    I just don’t get it. Are the Republicans annoyed because the Democrats want to spend money in this country, on our people? If they want to cut something that badly, why don’t they cut some of the overseas spending?

  • Comm_reply
    fakk2 04/14/2011 6:30am

    It’s not about being annoyed about spending money, it’s about being responsible about spending money and keeping to our founding principles. Right now, we’re facing a $1.6+ TRILLION dollar deficit just for this year which ends in September. That’s like you making ~$200,000 a year, but decide to leverage your home to creditors to spend an additional $160,000 on whatever you feel like. So, you’re spending almost double what your paycheck is. Year after year you’re $160,000 in home refinancing, credit cards, and bank loans have added up to $1.5 million dollars total debt, and you’re still expected to make payments. There’s no option of going bankrupt because your friends, family, neighbors, and businesses have invested their life savings in you. If you go did bankrupt, they will all lose their home, savings, and jobs because they believed in you and you let them down. Some will try to kill themselves. Most will be out on the street with no hope of ever getting back what they had.

  • Comm_reply
    fakk2 04/14/2011 6:30am

    That’s what the debate is about, and overseas spending won’t fix it alone.

  • eth111 04/14/2011 2:32am

    This whole debate is framed around the sophism “insurance should provide preventative care”.

    Insurance is a financial instrument by which an individual attempts to provide themselves with a backup strategy in the event of a catastrophe. In the realm of automobile insurance, the consumer is betting that they will have an accident at some point and the insurer is betting that they won’t. The insurer places odds on the bet (risk rating) based on the driving history and charges rates accordingly.

    What is being discussed in this debate is not insurance, but maintenance plans where a third party pays the lion’s share of the cost, but in order to manage their financial risk, a bureaucracy builds up to protect the “insurer”. This is the equivalent of insisting that your automobile insurance cover oil changes, tires, etc.

    The sophism must be exposed and defeated before the debate can become honest and productive.

  • Comm_reply
    luminous 04/14/2011 10:25am

    Their not comparable, The datasets are entirely different.

    Auto insurance costs having a fairly even distribution of costs through its dataset and a comparative marginal worst case cost cap, No insurance will pay to fix a car where the cost of fixing is higher then replacement.

    Where as health insurance has a very uneven distribution within its dataset and costs where they occur tend to be very very spiky, and unlike car insurance their is no cost “cap” where we opt to replace the person as opposed to fix them.

    The spiky nature of health insurances cost distribution is what breaks the private model of health care financing. The risk pool has to be huge enough to even out the number line enough to stabilize the premium price, while at the same time avoiding an adverse distribution between insurance providers in a multi provider market.

  • Comm_reply
    eth111 04/15/2011 2:59am

    I realize that the datasets are entirely different, but it doesn’t necessarily make it an unfair comparison. I am comparing methods, not results. Means and not ends.

    As for your sophism comparing totaling a car to catastrophic health care, if you want to play that card, then how to you place a value on a human life? How do you compare value between individuals of different demographics?

    The spiky nature of health care costs does not “break” the private model, it simply means that the applicable model has to take that into account.

  • Comm_reply
    luminous 04/15/2011 10:02am

    You don’t put a price on a life, I point that out to demonstrate a major difference between the two datasets.

    Its not the spiky nature on its own that is simply one of several issues that compound the problems in the private health care financing system.

    Maintaining non-adverse distributions in insurance risk pools between providers trends towards a natural monopoly(US statistics on this confirm it as well as 94% of insurance markets are considered non-competitive). It also part of what leads to pre-existing condition non-coverage, and rescission behaviors of insurance corporations.

  • Comm_reply
    luminous 04/14/2011 10:37am

    “Real insurance”, as you put it isn’t an option to fix the problems because of how costs are distributed, The cost between as a function of just the premium between high deductible junk plans and comprehensive insurance is at most 20% and further inflation in high deductible plans is higher then in comprehensive plans due to adverse risk from untreated and late caught diseases and other illnesses.

    And of that 20% difference it is not a 1:1 cost shift, due to a number of reasons but the most obvious being that you average health care consumer does not have access to the same investment options and returns as a large managed risk pool(1/5-2% savings account vs 8%-12% in managed investment of the insurance co), In order for the out of pocket expenses to qualify you still have to “shop” for your care in network as opposed where it might be cheapest. To say nothing of the conflict of interest for the insurance company on the rates charged for out of pocket/below the deductible care.

  • Comm_reply
    eth111 04/15/2011 2:53am

    I agree with most of your observaations, but here are a couple of points;

    Why is a high deductible plan junk (hint, another sophism at play)? I know plenty of individuals who choose them because they make perfect sense for their overall situation. You can’t play the “selfish single person” card, because one of them is married with two kids in a single income household.

    Comprehensive insurance is a prepaid maintenance plan – please at least be intellectually honest about that.

    Health care costs, including catastrophic insurance premiums, were handled by individuals at their own discretion until the inception of the above mentioned health care perk strategy during the Truman administration.

  • Comm_reply
    luminous 04/15/2011 10:23am

    Not so much worried about the individual as I am for the long term viability of the approach. CDHP such as a high deductible plan have had higher inflation rates then normal comprehensive care “maintenance” plans due to increased cost to the consumer for the initial diagnosis, this little bit of adverse risk in eating out the savings these plan portend to have(for the insurance company that is).

    And really I don’t get that part of the “plan”, most other businesses will give you a free quote or bid on costs related to whatever they sell, building services, vehicle repairs, whatever. Primary care doctors are just as much the front line of medical care sales as the guy who gives you a free quote on paint chip repairs for your car. It is as stupid as if Sears Roebuck where charging $200 to see the TV salesman.

  • eth111 04/14/2011 2:43am

    The other thing to realize is that the US Government is responsible in large part for the ridiculous health care situation in America today.

    Employer based health plans started in the late 1940’s due to wage limits placed on employers by the federal government. To provide some compensation differential, fedzilla allowed employers to offer health insurance programs as a tax deductible benefit to employees.

    Fedzilla got directly involved with health care with the creation of Medicare/Medicaide. With the government involved in the exchange, bureaucracy naturally evolved. Then they made it illegal for a hospital to turn people away at the emergency room. This resulted in people with no insurance clogging emergency rooms for trivial issues rather than actual emergencies.

    Then comes the creation of Health Maintenance Organizations (see my post above).

    The strategy for 60 years has been to stack one bad idea on top of the last one(s) rather than undoing the disaster that has been created.

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