Progressive supporters of health reform wanted a public plan option to compete with private insurers offering insurance in the state and federal health exchanges. To draw support from progressives, proponents of the Patient Protection and Affordable Care Act (ACA) created a type of nonprofit health insurance cooperative that would compete with established health insurers. Consumer Operated and Oriented Plans, or health insurance COOPs, as they are commonly known, were a political compromise for those who supported allowing non-seniors to buy their way into Medicare or a similar public program.
Advocates hoped COOPs would function similar to nonprofit, enrollee-owned mutual insurance companies that would put the needs of people ahead of profits. Proponents naïvely thought COOPs could outperform established, for-profit insurers and undercut their premiums. These member-led plans had little chance to succeed because their political agenda overshadowed economic considerations; COOPs had no competitive advantage and were doomed to failure.
The COOP program is plagued by numerous flaws. When COOPs were established, they had no customers and no historical actuarial data to assist in setting plan premiums. Startup funds and cash reserves were borrowed from the government, with funds allocated by the ACA. Many of their customers had gone without health insurance for years, until generous taxpayer subsidies became available to lower their premium costs.
Two-thirds of the COOPs have now failed. A University of Pennsylvania Wharton School health economics professor expects most of the remaining COOPs are likely to fail. His view is shared by many others, including members of congress. Today only eight of the original 23 health insurance COOPs are going concerns.
All told, about $2.5 billion in taxpayer funds have been squandered on loans to health insurance COOPs, three-fourths of which went to COOPs that have already failed. The likelihood of getting any of those funds back is nil. Although it varies by COOP, the losses were $100 per member per month for some plans.
Health insurance COOPs are but one example of Obamacare’s hubris. Obamacare changed the way individual health insurance is regulated. The goal was to expand coverage, make coverage more generous and remove the restrictions on applicants that insurers placed on them to avoid losses. With those restrictions gone, losses have mounted.
The non-profit Blue Cross Blue Shield Association found that Obamacare enrollees are about 22 percent more costly than people covered through employer plans. Indeed, the consulting firm McKinsey & Company found insurers lost money on individual insurance in more than 80 percent of the state marketplaces in 2014 — the first year Obamacare exchanges were open.
Health Care Service Corporation, the parent company of Blue Cross Blue Shield plans in five states, lost $767 million on individual insurance in 2014 and $1.5 billion in 2015. Another major insurer, UnitedHealthcare lost nearly half a billion dollars ($475 million) in Obamacare in 2015. The insurer’s losses are expected to nearly double to $850 million in 2016.
Why all the losses? Obamacare regulations create perverse incentives that boosted member costs by nearly 60 percent from 2013 to 2015. A working paper from the Mercatus Center estimates insurers likely lost about $400 per enrollee in 2014. Poorly conceived regulations also allowed individuals to game the system, signing up late, getting expensive care and bailing out early after care is received.
But at least Medicaid expansion is cheap. Right? No, not really. As recently as fiscal year 2011, Medicaid covered adults cost $3,247 per individual while children cost only $2,463. However, a new report from the U.S. Department of Health and Human Services found Medicaid expansion enrollees are 50 percent more expensive than originally projected. New Medicaid expansion enrollees’ costs were $6,366 in 2015.
When state regulators turned down a rate increase of 52 percent for the Blue Cross plan in New Mexico for 2017, the insurer decided to pull out of the market. The Blue Cross plan in Texas recently file requests for rate increases of up to 60 percent.
UnitedHealthcare recently announced it would stop offering coverage in 2017 in many of the exchanges where it is losing money. Taken together, these facts can only mean Obamacare is failing. It’s not just exchange plans. All individual coverage sold has to meet the same regulations.
The logical question is: how many more billions of dollars do American consumers, taxpayers and publicly traded corporations have to forfeit down a rat hole before the Obama Administration admits its signature legislation is a colossal failure?
A version of this Health Alert originally appeared in Town Hall.