The ever-changing face of the health care reform battle has started to show more of an inclination towards health insurance co-ops this week, as opposed to a public health insurance plan. It’s anyone’s guess what will eventually come of all this, but for now, co-ops are getting a second look.
In doing some research, I discovered that Colorado had a co-op, called the Colorado Health Insurance Purchasing Cooperative (CHIP) back in the 90s. It was formed in 1995, and only lasted a few years. Its members were large and small employers in Colorado, individuals were not allowed to join the co-op. Eventually, health insurance companies just started offering lower premiums directly to businesses, and by-passed the co-ops.
People who are familiar with co-ops (credit unions and electricity co-ops are good examples) tend to like them, and this idea is probably less of a lightening rod for political tension than a public health insurance plan. Although it has drawn plenty of criticism for being a weak answer to a big problem.
One of the criticisms of the private health insurance industry is that there isn’t much real competition. Proponents of the co-op idea believe that co-ops would increase competition and thus drive down costs. I’m sure that this is the case in some markets, but here in Colorado we have a pretty robust health insurance market, with lots of companies competing with each other. Initial underwriting can result in higher premiums based on a person’s medical history. But after that, future annual premium adjustments are based on claims history for everyone who has a particular policy, thus the risk is spread across a large population.
In the small group market in Colorado, HB 1355 took away the ability of health insurance carriers to adjust premiums based on the health of a group. So rates for small groups are determined without regard for each specific group’s medical history. Instead, all groups are rated the same, based on claims history for all of them combined. The small group market in Colorado includes many of the same carriers who offer individual health insurance here, and there are several options from which an employer can choose when shopping for a group plan.
Co-ops might very well be able to bring down costs by introducing an additional element of competition to the health insurance market. But premiums for small groups in Colorado are already determined based on aggregate claims, rather than individual histories, and annual premium adjustments for individual policies are also based on aggregate claims. The idea of individuals banding together to purchase health insurance as a group is often touted as a solution, but group health insurance is actually more expensive than individual insurance (because of the state mandates for group policies, such as maternity coverage, and because group health insurance is guaranteed issue while individual health insurance is medically underwritten). Co-ops might be a beneficial addition to the health insurance market, but I think that there are a lot of misconceptions that would need to be cleared up before any realistic dialog could take place around this issue.