[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”]

ALT="cheeseburger and health insurance co-ops"

hamburger

Health insurance co-ops are a bulwark of the 2010 Affordable Care Act and have starred in the news lately but for all of the wrong reasons. As of this writing, 10 of 22 of them have financially collapsed and more are waiting in the wings to do so. In everyday language, they are bankrupt. Insolvent. Kaput. The reason is at once simple and complex, so some background is necessary.

The co-ops were intended to provide an alternative and therefore foster competition in the health insurance market. The theory was that private, for-profit insurance companies were, shall we say, “over- zealous” in what has been called “pricing.” That is to say, some people thought that premiums were “too high.” It was believed that offering health insurance through government co-ops set up by the states would foster competition and bring private insurers’ premiums down.

Health Insurance Co-Ops And Cheeseburgers

The term “price” has been used by the media, rather than premium, which is insurance terminology. Maybe it was because using “price” would make it easier and more understandable, say, like a cheeseburger. After all, Wendy’s competes with What-a-Burger. Wendy’s and What-a-Burger compete with White Castle, and everybody competes with McDonalds on price and otherwise. All have their followers. But the fallacy is that terminology doesn’t change health insurance into cheeseburgers. There is a lot more to insurance than to cheeseburgers. Although at times, both are hard to swallow. (forgive that one).

The Wharton School of Business at the University of Pennsylvania has reported that more than 500,000 customers of the now-defunct co-ops must find new health insurance. One has to wonder how easy that will be to do if those people decided on co-ops in the first place.
Somebody who wanted a Big Mac could always go to Wendy’s if the McDonalds was closed, and there would not be much of a difference in price or nutrition. But with health insurance, presumably, people had shopped the private market before settling on co-op coverage. Now, though, they don’t have even that. Moreover, they are worse off than before the collapse of the co-ops (which were supposed to help consumers). How? (you ask).

  • Premiums could rise because an estimated half-million people will now need to find alternatives to the failed co-ops. Lots of demand usually increases price (err…premium).
  • Premiums could rise because of the reduced competition (due to the failure of the co-ops). Remember, one of the main motivations for the creation of the co-ops was to increase competition. So much for that theory.
  • Premiums could rise because fewer healthy people may buy health insurance. As we will discuss, one of the overriding realities of real insurance is that big (current or potential) risk is spread over many people.

This is called the “law of large numbers” and allows insurance companies to fairly accurately predict payouts over a determinable time and thereby, set premiums. Insurance companies also have other sources of income, such as from investments of premium dollars, so it is not just premiums that go to pay claims. The point is, this is complex and mathematical stuff.

And, that’s why when you need The Insurance Problem Solver to help you navigate the murky waters of health insurance co-ops (as compared to cheeseburgers), please call me! You may note that this information is in my wheel house, and I know I can help make it simpler for you.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]