A few of my friends here in the Rocky Mountain State recently had a jagged boulder heaved their way. Sadly, I had warned them that this would be likely to occur, but they wouldn’t listen. Now, after drinking the health care reform Kool-Aid, they are the ones whining about the very initiative for which they had high hopes.
So here’s the scoop…..
Colorado HealthOp, a non-profit co-op that has been a key element of Obamacare in this state, announced last week that it will not be offering health care plans in 2016, becoming the seventh of 23 taxpayer-funded co-ops to shut down across the country. This comes on the heels of the $2 billion-plus in government funding that has already been distributed to insurance cooperatives across the nation to fuel a more competitive environment for Obamacare marketplaces.
This decision to close down is due in large part to a ruling from Colorado’s health insurance regulator, decertifying the insurer from Connect For Health Colorado, the state’s Obamacare marketplace exchange. Reports suggest that the move is linked to financial troubles at the co-op, attributed in large part to the federal government reneging on its commitment to provide $10 million for operational support under the Obamacare Risk Corridor program. As a result, it is estimated that nearly 83,000 Coloradans will struggle to find alternative affordable coverage options.
Many of my friends will be among them.
Was this a Predictable Outcome?
According to many health policy experts, the answer to this question is a resounding YES, due to the blaring moral hazard inherent in this co-op model. It goes like this:
The aforementioned Risk Corridor program was designed to provide money to Obamacare insurers to mitigate costs associated with enrolling less healthy people. In other words, the intent was to funnel money to insurers to lessen their expenses due to increased costs associated with taking on too many sick patients. To date, insurers nationwide requested more than $2 billion for the program from the feds, but they only received $362 million.
So here’s the bottom line. The fiscal shortfalls facing many co-ops are directly related to their need to be revenue-neutral, meaning that they can’t pay out more than they take in. Others are struggling due to price premiums that were set too low, resulting in insufficient funds to cover medical claims. Experts note that some co-ops will have no other alternative but to raise their rates in order to stay alive; a move that places them in a competitive pricing scenario with other insurers.
Personally, I believe that voluntary cooperatives – co-ops for short – are an effective model for facilitating value among groups of people. The outdoor activity company REI and Land O Lakes of butter fame are recognizable names in the world of co-ops. Admiring the success of these models, it was generally believed that applying them to Obamacare were a viable option. Early results suggest otherwise.
The cumulative effect of the demise of these co-ops has been staggering. An estimated 400,000 Americans are projected to lose their insurance coverage by the end of 2015, as several major co-ops across the nation cease operations. Included in this list are 51,000 member Kentucky Health Cooperative and 150,000 member Health Republic Insurance of New York. And of the 23 co-ops in operation across the country, just one experienced profitable returns in 2015.
Where is it All Headed?: My Prediction
Sitting at a local Denver coffeehouse while in the throes of writing this article, I had an interesting conversation with a nurse practitioner seated next to me who works with the local public hospital and community health center. She notes that the patient demand there for primary care services has risen exponentially, mirroring the massive uptick in new Medicaid enrollees. In my view, her assessment offers a clue on the direction the fed is headed with all of this. It’s called a single-payer system.
Obamacare has been a lightning rod of controversy since its inception. For starters, it was fraught with technical glitches during the first ninety days of the first enrollment period, preventing many from enrolling online. Then the law endured an onslaught of Supreme Court challenges, questioning whether certain provisions of the law violated the constitution. Now we are awash with the latest challenge: millions of Americans who are unable to keep their preferred health plan option.
What I believe will ensue from all this is a battle of epic proportions from two widely disparate camps. First, there are those who will continue the push for government-run health care. My primary beef with this thesis is the horrible track record of the feds in terms of the efficient management of government services. One can only point to the debacle of the VA system, which has left so many of our veterans out in the cold, as a prime example of why a government run-system is not a good option.
On the other side of the battle lines are those who believe in a free market approach to healthcare, where government meddling is relegated to the sidelines. Echoing the words of Lao Tzu in the Tao Te Ching:
“Governing a large enterprise is like frying a small fish. You spoil it with too much poking”.
It’s here where I predict that Obamacare will self-destruct under it’s own weight, forcing our leaders to seriously examination of the merits of unfettered consumer choice in health care access, quality and cost. Irrespective of where one stands on this topic, it’s an issue definitely worth keeping an eye on, as we head into the election season.
Michael Scott is an independent journalist and contrarian disrupter focusing on the intersection between free markets and economic freedom. He can be reached on Twitter @biz_michael