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.
On the other hand, at least Oscar has a fair shot at surviving. It may not be as purely enlightened as some of the CO-OPs were, but go look at the reviews that some of the failed CO-OPs’ member-owners have posted on Yelp. Many of the CO-OPs’ member-owners did not feel especially empowered; they felt robbed. Maybe it’s better to be robbed by an openly for-profit, outside company than by a nonprofit entity that’s telling you that you’re one of its owners.
Meanwhile, all kinds of experts were telling CO-OP program regulators, as the program was being created, that the limits on access to outside capital were formidable.
On the third hand, even if the kinds of lawmakers and regulators who saddled the CO-OPs with absurd constraints knew back then what we all know now, they probably wouldn’t have done anything differently. They now know, for certain, that the CO-OPs are having problems because of a wicked robber baron conspiracy operated by Goldman Sachs, Marco Rubio and Hillary Clinton, not because there were any problems with the program rules they developed.
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