This is a follow on to Hank's post on CO-OPs a couple days ago. Authority for CO-OPs was created by PPACA. CO-OPs are nonprofit, customer-owned health plans, designed to compete against the major for-profit insurers.
According to Kaiser Health News, the fiscal cliff deal approved by Congress on New Year’s Day eliminated most of the $1.4 billion in remaining funding from the federal health law for new CO-OPs. The fiscal cliff deal does not affect the $2 billion in loans already awarded by HHS to a number of CO-OPs around the U.S. The start-up loans are interest-free. (. . . which means the taxpayer bears the cost of the money - as well as the business risk of these new businesses.)
Initially, the health law allocated $6 billion to help co-ops start up and meet state insurance solvency requirements. In 2011, Congress reduced that funding to $3.4 billion as part of broader budget cuts.
One organization that has received CO-OP loans: the Freelancers Union. This organization is a nonprofit created to represent freelance workers and independent contractors. It’s reported that the Freelancers Union will receive $341 million in loans from the U.S. government to start health insurance plans in three states – New York, New Jersey, and Oregon.
“It’s like venture capital for health care,” said Sara Horowitz, the group’s executive director.
Just what we need – a federal snowstorm of high-stakes venture-capital wagers, based on political calculations, not business calculations. Another wager like Solyndra. Be still, my beating heart!
Notwithstanding this generous, reckless federal plunge into more “investments” it does not understand, CO-OPs will encounter harsh reality. Can they really compete with the large, established companies like United, Wellpoint, and Aetna? How much marketing overhead will be necessary to overcome those major companies’ existing name recognition, public confidence, and enormous membership base over which their expenses are spread? Will a hoped-for 5%-6% “advantage” arising from the CO-OPs’ non-profit status translate into premiums low enough to persuade people to risk joining an untried CO-OP? If CO-OP membership does not materialize, how long before the feds give up and cancel further subsidies?
Beyond these practicalities, the odor of political cronyism and paybacks is heavy around the CO-OP awards. Devon Herrick, a senior fellow at the National Center for Policy Analysis, says "the federal loans will likely enrich unions and the executives who administer the plans, but the coverage is unlikely to be any more efficient than commercial insurers.”
I think the appropriate taxpayer response to CO-OPS, is “Uh-oh”.