Obamacare

Obamacare Could Have Been Even Worse

The federal government's new health plans are a case study in how bad the public option would have been.

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President Barack Obama after speaking about health care reform
Official White House Photo by Chuck Kennedy

In his September 9, 2009, prime-time speech to a joint session of Congress, aimed at selling the health care reform legislation that would eventually be known as Obamacare, President Barack Obama went out of his way to criticize profit-seeking health insurers. "As one former insurance executive testified before Congress," he said, "insurance companies are not only encouraged to find reasons to drop the seriously ill, they are rewarded for it. All of this is in service of meeting what this former executive called 'Wall Street's relentless profit expectations.'"

To keep the private-sector insurers "honest," the president proposed a system of nonprofit, government-run health insurance plans dubbed the "public option." The public option would keep traditional insurers in check by offering lower premiums, made possible due to lower overhead and administrative costs. Taxpayers, Obama promised, would not end up subsidizing these plans.

Despite enthusiastic support from liberals, the public option did not make it into the final bill. But a similar, smaller-scale measure did: $6 billion for government-backed loans to create a network of startup, nonprofit health insurers dubbed co-ops (short for "consumer operated and oriented plans"), which backers asserted would increase competition and exert downward pressure on insurance premium prices without requiring the government to fully run them.

Five years later, Obamacare's co-ops have gone live-and are teetering on the brink of disaster.

Wracked by enrollment headaches and pricing problems, the government-backed plans are struggling to stay afloat. Several have already shut down or announced their intentions to do so. Instead of serving as a viable alternative to traditional health insurers, the co-ops are leaving consumers in the lurch and sticking taxpayers with a tab that could reach into the billions.

Not Going As Planned

The public option favored by many liberals would have created a fully government-run insurance plan to "compete" with private health insurance plans. The co-op compromise instead provided government-backed loans to state-based, community-run nonprofits that supporters hoped would serve the same function. For the Obama administration, there was little difference between the two nonprofit systems. Speaking to Bloomberg News about the co-op idea in 2009, as the bill was taking shape, then-Health and Human Services Secretary Kathleen Sebelius explicitly compared the idea to a public option: "You could theoretically design a co-op plan that had the same attributes as a public plan," she said.

Warning bells about the plans' financial sustainability rang early, with a 2012 report by congressional Republicans estimating that co-op losses would eventually consume more than 90 percent of the money appropriated to back the plans. (The original $6 billion loan in the March 2010 Patient Protection and Affordable Care Act was whittled down to $3.4 billion by Congress as part of a 2011 budget authorization following GOP criticism of the program, and would eventually be cut down to $2.4 billion as part of the deal to avert the fiscal cliff at the start of 2013.)

Horror stories started piling up. In 2013, one proposed plan in Vermont called it quits before enrolling a single member after the state's insurance regulator expressed concerns about its ability to repay its loans. Federal health authorities subsequently demanded that the Vermont co-op return nearly $10 million in startup funding.

Originally envisioned as a nationwide alternative, with plans active in every state, only 23 co-op plans ultimately went online. And as predicted early on, nearly all of the plans that made it to market have faced serious financial difficulties.

In 2014, the first year of operation, all but one co-op operated at a loss, according to a July 2015 report by the Health and Human Services inspector general (IG); 13 of the 23 had "considerably lower" enrollment than projected.

Given their ongoing precariousness, it's not clear how long these plans will survive. Indeed, the IG report explicitly questioned their ability to stay solvent, warning that "the low enrollments and net losses might limit the ability of some co-ops to repay startup and solvency loans and to remain viable and sustainable."

The Obama administration doesn't seem particularly concerned. According to the IG report, officials at the Centers for Medicare and Medicaid Services, which oversees the program, have put four of the plans on a shorter leash through enhanced oversight. But they haven't even set out clear rules about what constitutes viability or sustainability. Nor have they released the names of the plans on the heightened watch list.

For some plans, it's already too late. In January 2015, CoOpportunity Health, a nonprofit plan serving Iowa and Nebraska that received hundreds of millions of dollars from the federal government, shut down, leaving 120,000 Obamacare customers suddenly without health insurance. Unlike many of the nonprofits, though, CoOpportunity's problem wasn't under-enrollment; it had only expected to sign up about 15,000 people, according to The New York Times. Instead, it was the unexpectedly poor health of the people who signed up, and their subsequently high claims costs. After running up more than $150 million in total liabilities with no obvious way to address them, the co-op had little choice but to shutter.

Troubled finances have already doomed three other state plans. The Louisiana Health Cooperative announced in July that it would close its doors by the end of the year. The company reported a $5.7 million loss last year, according to Modern Healthcare; for every dollar in premiums the cooperative collected, it paid out $1.13. In August, the Nevada Health co-op, which took nearly $66 million in federal money to help fund its launch, said that it would shut down at the end of the year too. And in September, New York state's co-op, Health Republic, announced that it would cease writing new policies at the end of the year.

Along with enrollment, the biggest challenge for the nonprofit plans may be setting premiums at the right levels. Many of the co-ops attracted customers initially by setting unsustainably low rates, but are now getting set to jack up prices, with 10 of the 23 requesting premium hikes of more than 20 percent for the next year, according to Politico.

State regulators, through negotiation with insurers, may ultimately push rates down somewhat, but it's also possible that the authorities will push rates in the opposite direction in the name of fiscal solvency. In Tennessee and Oregon, state regulators actually urged co-ops to raise their prices. Oregon's Health Co-op proposed a 5.3 percent premium hike, but state officials instead called for a 19.9 percent increase, on the grounds that insufficient rates could result in the inability to pay claims or even outright closure.

Many of the co-ops also appear to be struggling with the administrative costs that Obama promised they would avoid. Fourteen had annual administrative costs of greater than $1,000 per member, according to the Associated Press, and Massachusetts spent a whopping six times as much on overhead as it collected in premiums—about $10,900 per member. In comparison, one 2008 study funded by the insurance industry found that administrative costs for both Medicare and private insurers frequently came in at around $150 per person per year.

A Silver Lining

If there's an upside to the co-op mess, it's that it provides a tidy demonstration of how poor the judgment of federal health bureaucrats is when it comes to picking successful entrants into a marketplace—even a marketplace, such as Obamacare's exchanges, that they designed themselves. At least in theory, the Centers for Medicare and Medicaid Services only selected organizations that, as the IG report says, "demonstrated a high probability of becoming financially viable." Obviously, that didn't turn out to be the case.

But maybe taxpayers dodged a bullet anyway, by sidestepping an even bigger bill. If Obamacare had included a true public option, it almost certainly would have faced similar troubles with pricing, enrollment, and administrative bloat. But unlike the co-op plans, which are backed by government loans but not officially government-run, a public option likely wouldn't have shut down, leaving taxpayers permanently on the hook for years, even decades, of losses that would have tallied up to far more than a few billion in startup credit.

Obamacare's co-ops may have turned out to be useful after all—not as a check on private insurers, but as a demonstration of how awful a fully government-run public option would have been. As bad as the future of health policy might be, the failure could have been far worse.

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  1. This disaster isn’t over yet. As it becomes more obvious Obamacare isn’t working the Progs will push harder for Single Payer, which is what they’ve wanted all along.

    1. Single payer which will look more or less like the VA system, but probably crappier.

      As soon as I saw The Hildebeast saying that the whole VA scandal was a fake scandal I knew that she was trying to head off this criticism, which the progs know is coming when they push for single payer.

      The progs are nothing if not scheming and conniving. They really are the worst kinds of people.

      1. The proggies missed their shot, will be a long time before they hold the presidency and have a super majority.

        1. Nope, we’re almost certainly getting Hillary and Dems, come next year. Or worse, Bernie won’t flame out.

          1. She might win, but won’t have a super majority to ram through anything. Hell. Hillary has already said she wants to get rid of the Cadillac tax, if so obamacare fails.

    2. The second I saw the headline (“Obamacare Could Have Been Even Worse”) I thought “it will be”.

  2. “…Unlike many of the nonprofits, though, CoOpportunity’s problem wasn’t under-enrollment; it had only expected to sign up about 15,000 people, according to The New York Times. Instead, it was the unexpectedly poor health of the people who signed up, and their subsequently high claims costs. After running up more than $150 million in total liabilities with no obvious way to address them, the co-op had little choice but to shutter…”

    Breaking news! Dawn lightens the eastern sky first!
    The CA poobahs are now surprised at the cost of covering Alzheimer’s patients out of the public purse:

    “Report details Alzheimer’s huge financial toll in California”
    […]
    ” will cause Medi-Cal expenses for Californians with Alzheimer’s disease to rise nearly 59 percent to close to $4.9 billion annually, according to a report released Wednesday.”
    http://www.sfgate.com/news/art…..608773.php

    No way they could have seen that coming. Nope, no way…

  3. Gee, maybe this because politicians, particularly of the progressive sort, do not and really have no reason to want to understand what actually goes into a price for a service as complex as health insurance? Not understanding why something is as it is does not mean that how it was arrived at is irrational or unfairly rigged.

    1. Right. Kids’ Harvard tuition, new cars for the kids at Harvard, McMansion payments, European vacations, wine collection/investment, etc… I’d vote for some who would fuck those crony capitalists right in the ass.

  4. A couple of things to point out: The key reason Vermont COOP closed was because the Green Mountain Board was planning to toss out all of the insurers in Vermont to create a single payment system. They didn’t want yet another health plan in the State to complicate things. The regulators cited the COOPs inability to pay, which also had some validity, but it was pretty clear they loathed the idea of a Federal Government sponsored plan operating in their state. 2) A requirement for COOP managers is that they not be insurance executives, the thinking being that those troublesome insurers would simply operate a government division to continue their ill-gained profits. Any politician can run a health plan better than the insurer – right?

    1. “Any politician can run a health plan better than the insurer – right?”

      Yeah, if you can’t run your business well enough to pay your janitor $90/hour, you DESERVE to go out of business! Here, let me show you how to…….

  5. I make up to $90 an hour working from my home. My story is that I quit working at Walmart to work online and with a little effort I easily bring in around $40h to $86h? Someone was good to me by sharing this link with me, so now i am hoping i could help someone else out there by sharing this link… Try it, you won’t regret it!……

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  6. The only way to actually address all of this is abolish health insurance. Do away with it and let everyone make whatever deal they can with the providers directly. Price control was never part of the ACA in fact it was suggested that the ACA was intended to do the opposite of price control. Without any health insurance, prices would come crashing through the floor very rapidly and the outcomes would not materially degrade.

    1. Especially if providers are stripped of their government enforced legal monopolies. No prescription laws, suddenly you make the decisions regarding your health care. You can study the issues, or ask your druggist (as people used to do) what to take for your “problem”. Plus there would be different “tiers” of “hospitals” with different prices for service. Then too without all the restrictive laws to “where” you can purchase medicine or medical services, the price of medical goods and services would be considerable “less” than it is today. Plus, various “tiers” of providers mean you decide what level of services you feel would be best (considering the price of such services). There would be true free market in health care. Far different than what we have today with all the government laws and regulations we have to live under.

      1. Now you’re talking.

      2. “Especially if providers are stripped of their government enforced legal monopolies”

        YAY!

        Of course, this will never happen. Shaking down people through legal monopolies on *their health* is just way too lucrative. The tax ranchers and the monopolists they empower will *never* give up that gun to your head.

        We are tax cattle.

        Say it with me now: moo.

        Now doesn’t it feel better to finally face reality?

    2. We don’t need to abolish what we presently call insurance. Group discounts, and managed care are reliable cost saving methods. We just need to stop calling it something that it is not.

  7. Suderman is doing excellent reporting on this, and the rest of the media is starkly silent on this.

  8. Suderman is doing excellent reporting on this, and the rest of the media is starkly silent on this.

  9. “The original $6 billion loan in the March 2010 Patient Protection and Affordable Care Act was whittled down to $3.4 billion by Congress as part of a 2011 budget authorization following GOP criticism of the program, and would eventually be cut down to $2.4 billion as part of the deal to avert the fiscal cliff at the start of 2013.”

    Those Eval Teathugglicans! The co-ops could have hemorrhaged money for twice as long if they hadn’t sabotaged them.

  10. Obama could have accomplished more by repealing those laws and regulations that make US health care the world’s most expensive. Of course this would reduced the incomes of those involved in health care once their legal monopoly over drugs and services was eliminated. US health care under a libertarian order would cost half of what it does now.

    1. That would happen if pharmacists were allowed to prescribe.

  11. What we need is a single payer managed by our TOP. MEN. Fairness entails that everyone either get equally shitty healthcare or nobody does!

    Take that, Rethuglicans and Libertardians

    /derp

    1. “Fairness entails that everyone” but the TOP MEN and their cronies, of course.

      All animals are equal, but some animals are more equal than others.

  12. As we read about all these multi-million or multi-billion-dollar failures of progressive or defense-industry programs, we have to keep in mind: all that money went to some crony somewhere.

    Every one of these Obamacare co-ops had highly-paid executives who were gaming the system, stealing from the taxpayer.

    When and how can we make these persons pay? There isn’t a mechanism for it. So in the end, we are doomed to eventual collapse.

    1. “When and how can we make these persons pay? There isn’t a mechanism for it.”

      A *mechanism* is precisely what there is for it.

      Vote Woodchipper 2016!

  13. “Obama promised”

    HAW haw haw haw haw HAW haw haw HAW

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