I think the story of Oscar Health shows how drafter arrogance may have hurt some components of the Patient Protection and Affordable Care Act (PPACA) commercial health insurance provisions.
PPACA drafters who wanted to create a government-run, public option health insurance program wrestled with drafters who preferred to leave most of the traditional health insurance market for people under age 65 in the hands of private companies.
The result was the Consumer Operated and Oriented Plan (CO-OP) program, which provided billions of dollars of startup funding for nonprofit, member-owned health insurance companies. Under the current Centers for Medicare & Medicaid Services (CMS) interpretation of the PPACA CO-OP provisions, the rules are so strict that a CO-OP can’t have a board member from a health insurance company. Also, the member-owners of a CO-OP supposedly can’t sell the CO-OP to anyone, ever.
The big problem here is that one of the main sources of a nonprofit organization’s collateral is its ability to sell itself. If a CO-OP can’t sell itself, it can’t use any of the business value it has built up as collateral, and it can’t get loans.
The result: Only 11 of the 24 insurers that used CO-OP loans to start their organization are still fully operational, and just a handful of those are free from special regulatory supervision. It’s not clear how any of them can raise the capital they need to improve and expand their operations. It’s not clear whether, if and when they fail, the federal government can even get much cash by selling their assets.
Meanwhile, Oscar Health, a for-profit insurer created by money-minded investors — which looks and acts so much like a CO-OP that, frankly, I always assumed it was a CO-OP — is reporting $105 million in losses for 2015, or about $2,000 for each of the 52,800 enrollees it had on Dec. 31, on about $127 million in 2017 net premiums. But the company is fine because it recently raised $400 million from investors. The company has an estimated market value of $2.7 billion.
On the one hand, who knows what Oscar’s investors are thinking; maybe they’re as glum about Oscar as the CO-OP organizers are about the ones that failed.