As California builds an innovative health insurance exchange; our efforts to lead the nation with Consumer Operated and Oriented Plans (CO-OP) face an uphill battle. Health insurance CO-OPs were meant to be a quasi-public option for individuals and businesses to secure health insurance as specified in the Affordable Care Act. As a recent Health Policy Brief issued by the Robert Wood Johnson Foundation report outlines, [Download ->[download id=”55″]] the barriers to entry in the health insurance market place for CO-OPs are daunting at best and the door may have closed completely for most.
A new California CO-OP model
I’ve talked with numerous people who, like me, had high hopes that CO-OPs would be a consumer focused option where the business model was not driven by profits. We also shared the same naïveté about what it takes to build an insurance company with the myriad government regulations, contracts and talented personal it takes to manage such an endeavor.
Individual state laws
The first hurdle for any CO-OP is having the specific state laws that even allow for their existence under the structure of the ACA. Each state regulates its own insurance industry, not the federal government. Insurance companies have lobbied all states to create a favorable regulatory environment and reduce competition. California has passed the necessary legislation, AB 1846, but the start-up funding looks like it has dried up due to federal budget cuts.
Money, Money, Money
Capital is the next problem. Even the most successful non-profit or trade organization doesn’t have the millions of dollars sitting in a bank necessary to start-up an insurance business. Beyond covering the initial physical and IT infrastructure, insurance companies need to have a specific amount of cash in reserves to pay claims, especially in the event of a catastrophe.
ACA funded 24 CO-OP’s, none in California
The Department of Health and Human Services had awarded $2 billion in loans to 24 start-up CO-OPs in 2012. With the implementation of the federal budget cuts, all remaining funds that may have been allotted to new CO-OPs evaporated. This is good news to California’s existing health insurance companies who really didn’t want any new competition. It’s bad news for Californians who really wanted an alternative to the for-profit health insurance company.
California is unique and diverse
The very essence of a health insurance consumer oriented and operated plan can be found in Hacia Salud Health Insurance CO-OP. This proposed CO-OP was to be focused on low and middle income workers in California. The rich diversity of cultures, languages and ethnicity in California’s agricultural and manufacturing sector virtually demands a flexible health care insurance system for these workers and their families. Hacia Salud had refined their proposal at the request of the advisory board, CCIIO, over seeing the grant proposals at the end of 2012. Unfortunately, it looks like the “Fiscal Cliff Deal” of January 1, 2013, may have pre-empted their plans to acquire the necessary funding to get the CO-OP off the ground.
Is there a glimmer of hope?
California is a huge economy with a diverse workforce. We should have public or CO-OP alternatives for health insurance that are tailored to meeting the unique needs of our residents. The CO-OP model is not dead. But given the lack of funding at the federal level to help launch consumer focused health insurance cooperatives in California, it will take some deep-pocket organizations, dedicated to the vision of a CO-OP, to make them a reality in the near future.