Saturday, October 3, 2009

Healthcare Co-ops

At this point, I am sure that everyone is aware that the Senate Finance Committee voted down 2 amendments to introduce a public healthcare option into their proposed bill. Opponents of healthcare reform have trumpeted this as a major victory, without realizing that this has not killed the proposal. The Senate is a much more conservative body than the House of Representatives and the public option was going to be a tougher sell in that group. What healthcare reform opponents don't seen to realize is that the key action of the senate is to pass SOMETHING out of the chamber. If they Senate passes a bill and the House passes out HR 3200, then they go into the reconciliation process where the public option can become the primary method of making healthcare accessible to all.

I wanted to say a few words about the Senate's proposed alternative: health care co-ops. The intent is for these member-owned organizations to be able to bundle people together and allow them to self-insure.

This sounds like a nice idea: let the members decide what benefits will be offered and decide the premiums, costs, etc. There are major problems, though, that have to be addressed:

--Insurance companies are only financially viable if they have a large enough risk pool that the money being paid in in premiums can cover the necessary costs and benefits being paid out. This means that you need a sizable member pool to get a large enough risk pool with enough relatively healthy people that you can achieve the needed net positive cash flow. I don't know the numbers offhand but it is a very large number of people that need to be in the pool for the co-op to work. If we are going to have the 50+ co-ops proposed in the Senate (at least one per state), how can that critical mass of members be reached? Around World War II, healthcare co-ops developed as a way to handle healthcare. Of these, only 2 remain. How will the Senate's plan provide for the longevity and survivability of their proposed co-ops?

--On a more political level, how will the start-up co-ops be funded? I, for one, would be reluctant to sign up to a co-op and start paying premiums into it unless I felt that the co-op was financially secure enough to be around for a while. I suspect many people would be worried about sending money on health insurance coverage that might not be around very long. So: co-ops would have an easier time signing up members if there was some form of assurance that the institution was fiscally sound. For example, government back-up (in the same way that the FDIC protects our bank deposits) would provide the earliest members of healthcare co-ops assurance that their money would not be lost if the co-op is unable to sign up enough members. The political problem: Republicans will not support this sort of start-up assistance or other forms of federal money to ensure solvency.

--Finally, in order for alternative health insurance structures to be successful, they need to be able to compete with the large private insurance companies that are flush with money. How exactly is a Virginia Health Co-Op supposed to compete with Wellpoint (Athem) or Aetna or the like? If you had a nationwide health co-op then this might work. Funny...that sounds familiar...sounds a lot like a national public option...

So, the co-ops are unlikely to make a dent in the costs of healthcare, will have a terrible time enrolling enough members within an individual state in order to have the covered lives to be fiscally sound, and will have an even more difficult time starting up if there is no federal back-up to provide financial security for the early co-op members.

The Finance Committee's proposal for co-ops is probably planned to be a soft alternative that will not scare away conservatives and on the surface might appeal to liberals. However, at the heart of the matter, co-ops that are not structured at the national level and that do not have federal backing at the beginning will probably not make any difference.

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