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A Dissassembled Insurance Chassis

by Cat Tue Aug 18th, 2009 at 12:39:54 PM EST

One ought not assume the operating principles of all "cooperative" organizations are identical or to attribute automatically a politically meaningful determination of governance to their memberships. As illustrated by the screen capture above, the MostChoice "health coop" is an insurance brokerage. Its website facility qualifies individual applications for distribution among "exchange-participating" insurers. MostChoice may or may not require payment of a co-op membership fee at some point of the insurance application process, depending on how the state in which MostChoice resides regulates inducements. MostChoice may or may not be a nonprofit enterprise. Who would know besides state commissioners and MostChoice members, if any, receiving reports of the co-op's financial performance...

Mike operated his own financial planning firm concentrating in the areas of insurance and investments and was a Registered Investment Advisor. At the same time, Mike co-hosted the WCNN radio talk show MoneyTime in Atlanta until 2000 when the station changed formats. Mike was one of the first Internet entrepreneurs to obtain life and health insurance licenses in all 50 states. He wrote the initial business plan that ultimately led to recruiting Martin and the founding of MostChoice.

...in which they hold no interest anyway since MostChoice is evidently not the insurer writing the policy purchased. It's funny. This firm's arms-length exposure to the value proposition weakly articulated by Mr Conrad captures perfectly the toga party's determination to quash demand for single-payer financing AND industry reform.

A White House spokeswoman reminds us, fulfilment of a  promise to reform the health insurance industry does not include field-leveling actions like antitrust litigation or collective bargaining power that the "Medicare-like" coverage symbolized for uninsurable citizens. "Nothing has changed," she said. "The president has always said that what is essential is that health-insurance reform must lower costs, ensure that there are affordable options for all Americans and it must increase choice and competition in the health-insurance market."

In that spirit permit me to dissassemble the idea that national insurance "cooperatives" will relieve  monopoly conditons across the US. It's been bugging me.

Under a proposal by Sen. Kent Conrad, D-N.D., consumer[sic]-owned nonprofit cooperatives would sell insurance in competition with private industry, not unlike the way electric and agriculture co-ops operate, especially in rural states such as his own.

Utility and ag co-ops operate in thin markets, where investor-owned producers won't go.

Insurance cooperatives operate in the US. (The fragmentation of Blue Cross and Blue Shield Associations 'cooperative principles is a cautionary tale.) Typically, historically, these organizations don't identify themselves as "cooperatives" by name. Like any cooperative, an insurance cooperative is owned by its customers or membership. "Mutual" something and "society" of somebodies is the customary nomenclature of association --"persons united voluntarily" to meet their common economic, social, or cultural needs-- which must never be explicitly, primarily, and ironically, self-insurance.

In general, each of the 50 states' insurance regulations and commissioners recognize two defined groups. There are "natural groups," people who form a group for purposes unrelated to writing insurance for themselves. That is either an employer-sponsored ("employees") or an association-sponsored group. Then there are people that are not members of either who statutes classify mournfully, individuals (noted here by scare quotes, the "unnatural" group).

A state may issue a license to ("admit") a group of employers or individuals if the establishment of their association predates by a certain period of time application to write insurance. The number of years and documentary requirements of the group's activities varies state to state. The key construct of a group is common activity of its members.

NASRO (left) for example has elevated the pre-Affordable-Choice-Reform era of "exchange-participating" membership to an art form. This cooperative is no insurer. It is an insurance brokerage.

Eventually, Mr Conrad acknowledged his slip. He waved a georgist plume.

"It's not government-run and government-controlled," he said. "It's membership-run and membership-controlled. But it does provide a nonprofit competitor for the for-profit insurance companies, and that's why it has appeal on both sides."

An association-sponsored group of individuals is the category of insurer most frequently characterized as a member-owned organization. Of course, an association-sponsored group of employers is rarely characterized as a "cooperative." Individual incorporated and unincorporated entities constitute a group better known as a trade association. And "Lloyd's associations" --commonly related to "pooling and combinations," here specifically insurers-- are prohibited in the US, excepting certain property protection.

A trade association most certainly marshals collective bargaing power to secure favorable terms from the market for its employer members. By contrast, unrelated individuals submit assembly and sorting by brokers into experience-rated groups "associated" with community-rated plans "competitively" priced by various familiar insurers could be characterized as a "consumer-owned nonprofit cooperative." After all, the agent is an automaton and the individual owns the insurance, right?

Fed VC Making a Market for Third Party Administrator Services

Mr Conrad's appeal to cooperative ventures is more than a little disingenous.

Natural groups that write insurance on their own members are a union,  a professional or school association,  a fraternal benefit society. Members vote to adopt a medical benefit plan design --for example, comprehensive (HMO, preferred provider, point-of-service), major medical or supplemental -- and capital strategy to finance its operations, for example, establishment of (1) a mutual (or participating) company, (2) a multiple-employer trust, (3) a multiple-employer welfare arrangement.

I estimate this sector comprises less than 5 percent of privately insureds in any one state, and less than 2 percent of wholey privately insureds, that is subscribers under age 65. On average Medicare and Medicaid combined cover 20% of any state's, say North Dakota's, insureds.

With $3 billion to $4 billion in initial support from the government, the co-ops would operate under a national structure with state affiliates, but independent of the government. They would be required to maintain the type of financial reserves that private companies are required to keep in case of unexpectedly high claims.

Not unlike the Congress' partnership with the FRB, states' legislatures determine minimum loss reserves of admitted insurers, and commissioners periodically examine their books to certify compliance. Endorsing FRB regulatory competencies is strange enough. Installing federal "cooperative" agents ("affiliates") in each state would obviate CMMS administration --since "universal health care" displaces some obscene number of Medicaid enrollees-- while formalizing interstate cash flows of "exchange-participating" health plan brokers. In this way, affiliates will facilitate the plan-matching capacities of "co-ops" like MostChoice and NASRO.

NYT noted yesterday, 17 Aug, that Centers for Medicare and Medicaid Services (CMMS) is "the largest buyer of health care in the United States." It is the bureau that administrates benefits schedules and reimbursements. Oddly, enough the Obama administration has not appointed a director. Dr. Denis A. Cortese, president of the Mayo Clinic, is reported to have said, "The vacancy stands out like a sore thumb." Which reveals more about his grip on reality than the economics of public policy rolling down the Hill.

"I think there will be a competitor to private insurers," [DHHS Secretary Katherine] Sebelius said. "That's really the essential part, is you don't turn over the whole new marketplace to private insurance companies and trust them to do the right thing."...

If nothing else, Ms Sebelius understands that incumbents need federal guidance in sorting the "whole new marketplace" of individuals. Compared to employer-sponsored groups, whether whining from the pubic or private sector, the unnatural group is extremely fragmented.

Health Care for America Now.org released a market analysis titled "Pennsylvania Health-Plan Premiums Soar as Insurers Face Less Competition," in May, 2009. The entire report is only 13 pages. The table (right) describes concisely current health insurance industry conditions. One or two firms dominate the market in each state; in aggregate, the same firms dominate private sector underwriting, horizontally integrated complementary medical services (or "network"), and premium pricing, though not necessarily plan distribution or public policy. (For a brief of US antitrust policy, see Rubinfeld pdf)

Comparisons to GDP are a dime a dozen. Compiling the share data was no mean feat, as no federal agency of which I'm aware publishes a dataset for public consumption. That is number of insureds by insurer. Each of the 50 states' commissioners collects the information. So the researchers need to contact 50 different commissions to locate the most recent data. No wonder they were short 7 at the deadline.


  • Utility and ag co-ops operate in thin markets, where investor-owned producers won't.

  • "High risk pools" or "unnatural" groups are thin markets.

  • Fed VC making a market for third party administrator services

  • A "cooperative" is any designated third party producer of "Essential Benefit" plans in thin markets.

Community rating means a rating methodology by which the premium for all persons covered by the policy or contract is the same  based on the experience of the entire pool covered by that policy or contract form. Experience rating means a rating methodology in which age, sex, health status, occupation or other criteria are applied to the group covered by the policy or contract.

As long as there are competing insurers, the ability of large number of potential insurance customers to get together to negotiate 'bulk' rates on which the insurance companies can bid, should kink the market in favour of those potential customers in the short term; "2% of something is better than 25% of nothing".

But you are right that there needs to be a great awareness of how corporations increasingly exploit notions of greenness, transparency, sharing, cooperation, etc, as if just using the words is 'change'. Much marketing today is Find & Replace. Entirely new disciplines are needed. And I mean the marketing of politics, and of war, as much as the marketing that makes you consume.

One of the new disciplines should deal with the problem of mass hypnagogia.

You can't be me, I'm taken

by Sven Triloqvist on Tue Aug 18th, 2009 at 02:24:19 PM EST
It's not the "cooperative" or "nonprofit" characteristics that makes for effective competition capable of driving prices and profits down and services up.  It's the political accountability toward doing so.  In the US, the Federal Farm Credit System, borrowed from the German Landesbank model about a century ago, is a very good example of how cooperatives can provide competition in a way that benefits a given constituency. The reason it works is because its establishment created an embedded policy structure between beneficiaries, congressional committees, and the federal bureaucracy (called an iron triangle by political scientists) that guarantees high priority policy responses to crises that threaten any one of those three elements. An effective "public option" is any option, publicly or privately managed, that creates such an iron policy triangle in favor of assuring affordable health care to everyone in the US.
by santiago on Tue Aug 18th, 2009 at 04:51:41 PM EST
DHHS Secretary Katherine Sebelius
"That's really the essential part, is you don't turn over the whole new marketplace to private insurance companies and trust them to do the right thing."...

So true.  They are smarter than that.  Instead they will, effectively, turn over the whole new marketplace to private insurance companies and trust them to do the right thing.

Hope I am wrong.  Fear I am right.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Aug 18th, 2009 at 05:19:21 PM EST
Ugg!  turn over the whole new marketplace to private insurance companies and trust them to do the WRONG thing.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Aug 18th, 2009 at 05:21:02 PM EST
[ Parent ]

White House Defends Commitment to Public Option

The Obama administration continues to face questions over its commitment to a public health option. This weekend, the White House suggested it could back the formation of private-sector options, such as insurance exchanges or cooperatives, instead of a government-funded program.

This post illustrates that currently "cooperatives" function as "insurance exchanges" (brokerages) rather than "member-owned" HMOs. The commodities traded are incumbents' plan products and individuals, grouped (or bundled, in securities jargon) to capitalize same.

WH affirms its uncritical, political support for TitleII as drafted, including introduction of a debt instrument called "Individual Affordability Credits."

On Tuesday, White House Press Secretary Robert Gibbs told reporters the administration still favors a public option. But he said its refusal to insist on the public option as a requirement for healthcare reform falls in line with previous statements.

Robert Gibbs: "We have a goal of fostering choice and competition in a private health insurance market. The President prefers the public option as a way of doing that. If others have ideas, we're open to those ideas and willing to listen to those details. That's what the President has said for months."

Details, for example, recently added(see hash mark) to the bill H.R.3200 are TITLE VIII--REVENUE-RELATED PROVISIONS


`subchapter a. policies issued by foreign insurers

`subchapter b. insured and self-insured* health plans

`Subchapter A--Policies Issued By Foreign Insurers'.

                  (B) The table of chapters for subtitle D of such Code is amended by striking the item relating to chapter 34 and inserting the following new item: [## end edit]

*referring to association-sponsored group insurers, e.g. Group Health Cooperative (WA), GHI(NY)

Diversity is the key to economic and political evolution.

by Cat on Thu Aug 20th, 2009 at 09:56:16 AM EST
NPR news cycle broke yesterday morning with this headline promotion.

Health Co-Ops Touted As Alternative To Public Plan

NPR spoke with Pam MacEwan, executive vice president of public affairs with the nation's oldest [est.1947] health cooperative, Group Health Cooperative. Group Health covers 11 percent of the health insurance market in Washington state. It offers various types of insurance, at average or just below average prices....

What does that mean for someone who buys health insurance from Group Health?

We consider you a member, and you're eligible to vote in the organization, and you have a say in how we organize care and design benefits. Our members participate in reviews of grievances and in discussion about the benefits packages. Most of the work is done by the board of trustees that's elected by members.

What kind of care do members of Group Health get?

We have really different kinds of packages. You can buy individual coverage for your family with a high deductible that would look very much like any other insurance package. We offer full [group]coverage through employers and Medicare Advantage plans[supplemental]. Some people purchase a policy that allows them to go to any doctor; other people purchase something that's a little more restrictive that just allows them to go to Group Health doctors[HMO].

Group Health Options, Inc. and KPS Health Plans are subsidiary companies.

See also GHI and GHI HMO (est. 1937). I was once a GHI subscriber, distinct from  GHI HMO member.

Diversity is the key to economic and political evolution.

by Cat on Thu Aug 20th, 2009 at 10:16:40 AM EST
[ Parent ]

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