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One of the Internet’s gifts—and occasional annoyances!— is its space for people to self-publish their alleged expertise on a subject. Surely this must be some form of purging. I feel an odd mixture of depression and excitement toward these online message boards. The writers on healthcare forums vary from doctors, hospital executives, and private insurers, to young families whose finances have been wrecked by medical expenses. On the depressive side there is the unavoidable futility of sharing your wounds with strangers. On the other hand, the forums provide a sort of voyeuristic lens through which you see the orthodoxy or sacrilege of your ideas. The people whom you might expect to be supporters of Obamacare often excoriate the paltry and pricy insurance they receive. Similarly, those whom you might see as dissidents wind up declaring the ACA’s potential, the usefulness it will garner once the folds have been smoothed out. In each case, though, the conviction with which people deliver their ideas—on a forum that basically has no hope of effecting change—speaks to how much this stuff means to us.

So what’s really happening?

Now over halfway through 2016, of the twenty-three nonprofit healthcare co-ops— alternately known as consumer-operated and oriented plans— that mysteriously trickled into vernacular in 2010 as a result of Obamacare, sixteen have either flopped or, due to irrecoverable losses, shut their doors to future enrollees. Co-ops emerged as a kind of compromise to a public option, for which healthcare promoters initially advocated, but later dismissed in order to accommodate their opponents. A public option would have taken Medicare as its model, which, advocates argued, already had the infrastructure and provider-network necessary to take on new enrollees—something that the state-run co-ops did not, and have since suffered for lacking. Co-ops appealed to many because they were, to a certain extent, consumer-owned, and forbade governmental supervision over private insurance groups. Primarily, though, the Affordable Care Act, as The Common Wealth Fund notes, hoped that the co-ops would “give consumers the option to choose a nonprofit insurer with a strong consumer focus.”

But the ACA, or Obamacare, had a predecessor. In 2005, then-Massachusetts governor, Mitt Romney, in fear of losing hundreds of millions of dollars in Medicaid support from Washington, developed a new plan to insure more of Massachusetts’ citizenry. Romneycare, as it was later known, had three main facets which people began referring to as “the three legs of the stool.” Firstly, Romneycare prohibited insurers from screening people for preexisting conditions; secondly, it required people who did not have insurance through employers to purchase insurance on an exchange (sound familiar?) and also fined capable employers for not providing plans; and thirdly, the government vowed to provide subsidies to people whose incomes fell below a certain amount.

People heralded Romneycare for its bipartisan achievement, its ability to attract longsuffering healthcare reformers like the late Senator Ted Kenney while not alienating conservatives. The primary distinguishing factor between Obamacare and Romneycare, however, is that Romneycare focused solely on expanding coverage, whereas Obamacare from the outset pushed for expanding coverage and lowering costs, catching the attention of special interest groups and causing lobbyists to want to mold it into their own vision. In short, then, critics welcomed the ACA once it had been divested of a public option (and ironically had the capacity to bring much more business to the private sector); and advocates halfheartedly lauded the ACA because it was, at least, something—but that something turned out to be more perilous than promising.

While we might appreciate the ACA’s hopefulness, when the co-ops did enter the marketplace, as people warned and as critics had predicted, they were virtually unknown, underfunded, and carried stipulations that sabotaged their aptitude for effectiveness. In-network providers resisted co-ops because they had no brand name or identification, which, to providers, meant a possibility of defaulted payments. On the other hand, consumers who found appealing networks later discovered that the doctors originally listed as in-network no longer were. And this would be permissible if hospitals had warned the patients, pre-treatment, of the potential effects the change would have on coverage. Too frequently, though, as many of the posts address, the consumer discovers the reconfiguration after already receiving treatment— or when the bill arrives and the insurance coverage for which they pay has refused to cover costs.

Moreover, the ACA prohibited co-ops from using governmental subsidies to market their products, so for a while co-ops remained virtually unknown not only to providers but consumers, as well. This may seem minor, but as policymakers killed off any possibility of a public option, the New York Timespublished a blog entry titled “Making a Cooperative Work”[i] that laid out a number of provisions that would help decrease the high probability of a co-op failing—most of which the bill never took into consideration. Anticipating the difficulty anonymity in an established market would mean for the co-ops, the writer stated that it be imperative for congress to “provide seed money to fund… a marketing campaign,” stressing the importance of a campaign that would equal or exceed the amount dominant private insurers spend on administrative functions, maintain provider networks, payment protocols, and marketing, since the Cooperative would be trying to establish itself as a whole new player in the insurance market.

To attract customers and compete with private insurers, then, the co-ops were quick to offer unsustainable and ludicrously low premiums to groups like the elderly (for the youthful, for instance, they made the first three visits free) who would potentially, and often did, submit many more claims. The relatively inexpensive advertising ploy later inflicted, as one might imagine, a tremendous financial burden on the co-ops. Obama’s wish to keep premiums low, while it might be regarded as sympathetic to the consumer, had no real chance of succeeding because the premiums were really only a minor issue, an advertising ploy. Healthcare is so costly in general that it did not matter, really, if a consumer paid a low premium, because the emergent insurers were still left to address the exorbitant prices accrued by the actual treatment. And because the co-ops lacked decades of healthy people paying into the “insurance pot” there was an immediate and pressing problem of cash flow. This created a disparity between the attractiveness of low premiums and the high prices of the actual care, which the co-ops would have to pay, and which their acceptance of riskier consumers only compounded.

In addition, Common Wealth Foundation[ii] explains that because the co-ops had “[t]o meet the very short deadlines for filing rates and plans with state departments of insurance,” they were forced to “rent their provider networks from another insurance agency,”—agencies which, of course, had no real investment in the consumer-operated and oriented plans. As inconceivable as it may appear the private insurers actually made money off the co-ops—an irony that would be humorous if it were not such a blatant conflict of interest, an awe-inspiring contradiction of the private insurers’ fervent wish, at the first mentions of a healthcare bill, not to be constrained by federal supervision.

The difficulties with which the co-ops met the task of pricing plans also thwarted their durability—perhaps “the most important decisions CO-OPS faced,” the CWF report also said. They had no framework after which to model their own pricing, so were left to, again, organize their plans around competitors who had dominated the marketplace for years, had a much more predictable clientele, and a larger money pool to draw from. Co-ops fit into none of these categories—the only real commonality between the two is their hope to insure people. Anyway, the majority of fledgling co-ops, with business models based on their competitors’, overestimated enrollment numbers; and the ones that did not, lacked the resources necessary to deal with the unforeseeable influx of enrollees. Both miscalculations resulted in scary financial losses that a sounder foundation might have prevented.

As exhausted executives will explain the most complex and costly blemishes to the ACA are its risk management programs. Essentially, the programs are safeguards put in place to assure that the federal government does not take on huge debt or give too much funding to the cooperatives. The risk programs behave like a kind of neutral tax that requires the more profitable (a misleading term, in this regard) co-ops to supplement the losses accrued by the riskier ones. The programs failed the co-ops on two primary fronts: one, the few co-ops whose numbers, at least on paper, looked defensible at the end of the year did not have the base necessary to then give their small and skewed profits to the defective co-ops. Even more perplexing is the fact that the money the federal government supposedly took from the notable (again—misleading) co-ops—the ones who could pay, that is—the riskier ones never received. More disconcerting perhaps even than this is the other risk reduction measure that nudged many cooperatives into a kind of peculiar third category, between profitable and risky. For instance, Land of Lincoln, the CO-OP that shut down in June, leaving 50,000 consumers uninsured, is owed 72 million dollars while simultaneously owing 31.8 million to cooperatives that took on sicklier clientele.

Six years after the ACA passed, and after two near-death trips to the Supreme Court, consumers still fear acquiring health insurance, and, now, what the acquisition might later do to their finances. Those whose co-ops have gone under must, midyear, find new coverage with new costly deductibles, which many had already met with their preceding plans. The surviving co-ops have raised premium rates in order to balance losses. Higher premium rates, of course, only give consumers more of an incentive to explore elsewhere—or not at all—and probably with the safer private insurance groups. The one co-op that remains indifferent is Maine’s Community Health Options. To chalk its success up to resiliency and forethought might be a bit generous: unlike the other states, Maine competes with only one for-profit insurance group, Anthem Inc.—a luxury denied the rest of the cooperatives.

The ACA, which sought to extend coverage to the uninsured and rectify the more delinquent aspects of healthcare in America—and it is no minor achievement that it succeeded in outlawing prescreening and other horrendous practices, and has helped give coverage, however poorly, to 16.4 million people— has, unfortunately, it seems, made consumers even warier of healthcare, healthcare policy, and the co-ops which are said to be made for, and by, them.

References

[i] “Making a Cooperative Work.” Web blog post. Prescriptions: Making Sense of the Healthcare Debate. The New York Times Company, 17^th Aug. 2009.

[ii] Corlette, Sabrina, Sean Miskell, Julia Lerche, and Justin Giovannelli. “Why Are Many CO-OPs Failing? How New Nonprofit Health Plans Have Responded to Market Competition.” The Commonwealth Fund, 10^th Dec. 2010.