Failing (and flailing) co-ops: the canary in the mine?

canary in the coal mine

The Wall Street Journal is no fan of the Patient Protection and Affordable Care Act (PPACA or the ACA and as some brand it, Obamacare).  However, recent news about health insurers  pulling out of co-ops does rightly raise concerns about  the viability of the platform — and the potential fallout for employers and their plans.

To be objective, other carriers have indicated that they are making money on their exchange options and have no plans to exit the business.

Different Reasons, Same Outcome: Flight to Other Options

Those most in need of coverage are the ones who are signing up.

The co-ops that have failed have done so for a variety of reasons. But the end result is the same: more people without care looking to get coverage through the remaining players in the market — the private insurers.

Of course, those most in need of coverage are the ones who are signing up.  The healthiest co-op members are not rushing to find other coverage (since that coverage is likely to be more expensive than their co-op coverage).

Regardless, the costs in the exchanges are generally going up and coverage options are changing in ways that are not always reflected in the premiums themselves.  Deductibles and co-payments are rising, networks are narrowing, prescription drug formularies are slimming down… the list goes on.

So, one way or another, the costs to access care will go up.  That means that the “affordable” part of PPACA may become less affordable than it was previously, even with subsidies for the direct premium expense.

The “affordable” part of PPACA may become less affordable than it was previously.

It seems clear that there will be Americans who will abandon the costlier coverage and go without (and hope for the best) or seek other, less expensive coverage.

Given the exchange statistics — the Administration seems to be hoping to get 11 million people enrolled— somewhere between 20 and 30 million people will likely go without coverage, even in the face of penalties (scheduled to rise to $695 or 2.5% of an individual’s income, whichever is greater).

Consider These Scenarios

If more co-ops fail, some employees who might have opted for the exchange-based coverage may find themselves seeking other options.  Those who never had coverage in the past (but do now thanks to the PPACA mandates) may be grateful to have it.

Perhaps they’re facing a previously undiagnosed illness or had put off care because they judged the costs to be too high — and the care can no longer be ignored.  However, now that they have coverage and truly need to use it, the options are reduced or the costs increased. So they, too,  may decide to look to other options.

Somewhere between 20 and 30 million people will likely go without coverage

If they are full-time employees, they will likely expect those options to be their employer-based plans.  Even those who might not qualify as full-time employees (the PPACA definition is 30 hours/week on average) may petition to obtain coverage from their employers — who may agree to it.   In addition, previous part-timers may try to garner more hours in order to qualify for full-time status and eligibility under an employer plan.

What Happens When the Song Stops?

Of course, in all these situations, there will be a cost to employers.  Therefore, any reduction in exchange options — such as more co-ops expiring like the canary — has the potential to continue the upward pressure on employer plan costs.

About Jay Kirschbaum

Jay spent 22 years as a tax attorney specializing in employee benefits before joining Willis in 2001. He is current…
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