Health Care Reform Bulletin #5

From: Jim Gallic
Sent: Wednesday, April 04, 2012 6:54 PM
Subject: Health Care Reform Bulletin #5

What is a Co-Op?

Angel wanted to know more about cooperatives (Co-Ops) and the difference between a Co-Op and an Exchange.  A Co-Op is nonprofit organization formed by consumers looking to leverage volume purchasing for services or products. There are Co-Ops for dairies, farmers and utilities with some specifically designed to source health insurance products. They primarily differ from exchanges because they are driven by the consumer rather than the employer. Although a little old, this article from the NY Times provides some more detail around Co-Ops.

The goal of a healthcare cooperative is to provide a wider variety of options at a rate below what the individual could find on their own.  The challenge that Co-Ops face is in negotiating rates and discounts with health care providers that are better than insurance companies. This “Chicken or Egg” dilemma is the main reason why healthcare Co-Ops struggle to launch. Jason Allen’s question is directly tied to their other big challenge, managing those who utilize plans at a much higher rate than normal.  

What about Utilization Rates?

Jason asks “Do you think the fact that certain users in the market affect the rates of other users in the market will have any impact on the decision? If there are other iterations to come, do you think those would include a public option instead of an individual mandate?”

The National Health Underwrites (NAHU) has an excellent, easy to understand explanation for how insurance rates are determined in today’s current market. Put it simply, low utilization = lower rates.  If you are grouped together with other people who use the benefit of the plan at a substantially higher rate, everyone’s rates increase. Likewise, if the group has a low utilization, the underlying policy  has  sufficient funding to keep rates steady.  Unfortunately, Co-Ops and exchanges tend to attract those that are looking to lower their insurance expenses primarily because they are utilizing the plan too heavily. It is for this specific reason that Co-Ops and exchanges have fairly strict requirements in order to be included in their risk pool.

The Supreme Court’s decision to retain or remove the individual mandate will have an enormous impact on the stability and funding of a healthcare plan. Without the individual mandate that requires everyone to be in the insurance pool, there is no mechanism that will support an insurance plan that only takes in poor risk applicants without extremely high premium rates.

Certainly, there will be other iterations of health care reform depending on the ruling from the Supreme Court with a strong push towards including everybody (like Social Security) but the timing and feasibility of those plans are still very unknown.

Understanding Reform

There is a lot of health care reform jargon without a definitive source to explain in the meanings of the words. ThompsonReuters published a really good resource called “Vocabulary of Health Care Reform” that you can access here (you may need to provide contact information to access the document).  

In addition, this website provides details on the impact and timing of PPACA from the perspective of individuals, employers and providers.

Have a question, thought or insight? Send me an email at jgallic@businessolver.com and I will use it help educate everyone!