Short Takes On News & Events

Fiscal Deal Kills New Funding For Health Law’s Co-Ops

By Phil Galewitz

January 2nd, 2013, 4:37 PM

Going, going, gone.

The fiscal cliff deal, approved by Congress on New Year’s Day, eliminates most of the more than $1.4 billion in remaining funding from the federal health law for new nonprofit, customer-owned health plans designed to compete against the major for-profit insurers.

Photo by Aaron Sumner via Flickr

That means the Obama administration won’t be able to approve loans to any additional co-ops. In the past two years, the Department of Health and Human Services has awarded nearly $2 billion in loans to 24 proposed state co-ops. Those loans won’t be affected by the cut.

“We were  blindsided by the elimination of funds,” said John Morrison, president of the National Alliance of State Health Cooperatives. “The health insurance industry is getting its way here by torpedoing  co-ops in the 26 remaining states. This is not about budgets; it is about those health insurance giants killing competition at the expense of millions of Americans who will pay higher premiums because of it.”

But some House Republicans have said the co-ops were a way for the administration to reward its political friends. Sponsors of the co-op plans already underway include the Freelancers Union in New York, a farmers’ union in Colorado and the Connecticut State Medical Society.

Critics also have been skeptical the co-ops could compete with more established insurers, such as Aetna and UnitedHealthcare.

“Starting a new health plan is a risky proposition,” said Peter Kongstvedt, a McLean, Va.- based health care consultant. He said consumers already have sufficient choice of plans in most markets and won’t miss having the additional co-ops.

Proponents of the co-ops say such plans could offer lower premiums because they don’t have to generate profits for shareholders. Under the law, co-op plans must apply any surpluses to lowering rates or improving benefits or quality for their members. The co-ops are scheduled to open by next year.

In testimony before Congress last year,  Morrison called skepticism about co-ops’ ability to compete “naive,” noting, “The large carriers are saddled with stockholder demands for profit, large overheads, antiquated legacy processing systems and other inefficiencies.”

Initially, the health law allocated $6 billion to help co-ops start up and meet state  insurance solvency requirements. In 2011, Congress reduced that funding to $3.4 billion as part of broader budget cuts.

More than two dozen applicants were applying for co-op funding when the money was eliminated, Morrison said. HHS officials did not return calls for comment.

The deal approved Tuesday leaves 10 percent of the remaining co-op funds to cover the administrative costs connected with the 24 plans already launched.

6 Responses to “Fiscal Deal Kills New Funding For Health Law’s Co-Ops”

  1. Thank you Phil. How true your points! I thus sink in my corner sensing all was not it what is was all cracked up to be, with this administration. I’m not sure what the administration’s message is?
    Tai Aguirre

  2. Kevin Lynch says:

    Great post on the impact of the deal approved by Congress on the remaining 26 state co-ops.
    I appreciate the links for further edification.


  3. MRCHP CEO says:

    This is an alarming situation for those CO OP programs who have worked hard and now sit as pending companies formed to serve the public to provide affordable health care options. Many of us were in line to operate as soon as March. It is very difficult to compete with big companies, but it can be done. I am hopeful the public realizes that competition has been eliminated against public interest and once again what was promised – affordable health insurance options – has now been eliminated for the sake of profit for large companies. Very sad situation for those states who will now not have these programs available to them.

  4. Killroy71 says:

    Almost half of all people already covered have nonprofit insurers – who ALSO don’t have to generate profit for shareholders. Co-ops that got funding may soon find they don’t have any money left over for reserves, because they are covering rising costs of care, and will be lucky if they don’t need another infusion of federal funds. It takes years to accumulate enough of a safety net to get through one bad year.

    If starting a health insurance company was such a moneymaker, anybody could do it, without federal startup funds.

  5. Greg Scandlen says:

    These always were a dumb idea. Anyone could start a mutual insurance company which are owned by the policy holders. Guardian, Nationwide, and USAA are examples. But the ACA was so poorly conceived and poorly written that it made even that impossible. For instance, it confused “marketing” with “propaganda,” and disallowed it.

  6. Contrarian says:

    I liken your complaint to the billions our Pres. gave to the “Green” energy industry. So much money, so much failure. I have worked on the sales side of the health care market and over the years watched formation of associations to help industries reduce the cost of health insurance only to see them fail after 5 to 10 years. Once claims history starts showing up the healthy ones left the assoc. It’s the COST of care that drives the engine not the insurance companies, in my city we have more MRI machines than the entire nation of Canada, is that really necessary? All these hospitals and facilities want to make a profit as well even if some say they are “non-profit”. Wait until 2014-15 when the taxes, fines, penalties and mandated coverage of HCR take full effect, then you are going to hear from the public. Right now they like to think they are going to get it for free.