Saturday, October 10, 2009

How the insurance companies defeat co-ops

Some have proposed co-ops as a substitute for a public option in health care reform. The only problem is that they don't work. It is too easy for insurance companies to drive them out of business. Consider what happened in Texas.

In 1993, the Texas legislature created the Texas Insurance Purchasing Alliance to help small business ban together to purchase health insurance for their workers. Essentially this was a co-op like is being proposed under some health care plans as an alternative to the public option. Intially the Texas program worked. Sixty-three percent of the small businesses that participated were able to offer health insurance to their employees for the first time. The others already offered coverage but found the alliance cheaper. Six years later the Texas progam failed. Private insurers drove the Alliance out of business by cherry picking. Private insurance companies aggressively courted small businesses with younger and healthier workers offering them cheaper rates than they could get in the Alliance. The Alliance was left with small businesses with older and sicker employees. Eventually, the Alliance had to raise its premiums to a point that participation no longer was affordable for most small businesses. Co-ops in Florida, North Carolina and California also failed because of cherry-picking by insurers.

No wonder insurance companies aren't worried about state co-ops.


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