Are CO-OPs doomed to fail?


Only a few weeks into their operation, it seems the deck is stacked against consumer oriented and operated plans (CO-OPs).

Of the 24 CO-OPs now open for business, one has closed, another is struggling and at least nine other startup insurance companies are projected to have financial problems, The Washington Post reported.

The consequences if these CO-OP fail are widespread--taxpayers could be forced to pay almost $1 billion in defaulted loans, competition in the insurance market would decrease and members of the CO-OPs could lose health coverage and get stuck with medical bills.

"This is by far the most challenging thing I've been involved with in my 21-year career," Peter Beilenson, CEO of Evergreen Health Co-Op in Maryland and a former Baltimore health commissioner, told the Post.

The primary problem impeding CO-OPs is they weren't designed with necessary support. "One provision after another got stuck in [the reform law] to limit their probability of success," said Karen Davis, a professor of health policy management at the Johns Hopkins Bloomberg School of Public Health. "It's a little ironic to say you are for competition in the free market and then you don't make it easy for new entrants."

Maryland's Evergreen CO-OP is one of at least three other CO-OPs expected to face financial problems, according to an internal review by Deloitte conducted on behalf of the U.S. Department of Health & Human Services.

That review found Evergreen failed to qualify for initial funding because its financial statements "indicate a tenuous ability to remain financially solvent." It also determined New York's CO-OP had overly high debt and may have been overstating assets, and the New Jersey CO-OP's expenses were going to grow faster than revenue.

Despite these challenges, HHS remains optimistic about the future of CO-OPs. The agency is closely monitoring their progress and is "confident that co-ops will be an important option available to millions of consumers," spokesman Brian Cook told the Post.

Likewise, CO-OP leaders believe they will succeed and regard their existence as a landmark turning point in the insurance industry. Key to their success, say some CO-OP leaders, is their ability to secure low hospital prices and establish good provider relations, FierceHealthPayer previously reported.

To learn more:
- here's the Washington Post article

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