Co-Ops for Health Care Insurance is Good Policy

04/21/2008

Co-Ops for Health Care Insurance is Good Policy


Paul Munnis
Editor, The Rochester Democrat
Rochester, MN
April 21, 2008


Bringing the benefits of science and technology to people in the form of affordable health care is a major policy challenge today. Federal government is gridlocked over legislative solutions and State government is left with a sense that the ball is in their court to do something to relieve the crisis developing from an increased loss of individual and family health insurance.

The number of people without health insurance in The U.S. is thought to be approaching 46 million people. Democrats want a Universal health care plan and the GOP opposes any entitlement program additions. Democrats point out that low cost health care insurance is not an entitlement program, that one has the same insurance underwriters as who are in the market today and the insured pay for their coverage just as they do today, but at a much lower premium rate. The Republicans counter that it will cost private sector jobs and the Democrats say no, the Co-ops will hire workers and that its really job neutral. Thus the debate ranges on in Washington and nothing is getting done.

At the State level, the miracle solution as implemented in Massachusetts was mandatory policy coverage with some subsidy for the indigent. Yet reports coming in now is that with recession and increasing unemployment the program is collapsing.

MN Sen. Mary Olson observes that the U.S. in comparison to other nations is from 50 percent to several times higher than the cost of health insurance in other countries and that impacts national competitiveness in the workplace for our U.S. companies are burdened with a component cost that other nations’ business simply do not have. These have to be priced into the product.

Yet there is an affordable solution at our State level and that is to sell health care through a Minnesota Co-op.

You will recall that Co-ops are non-profit and that if the Co-op earns a profit then it must be distributed back to the Co-op members who are all stake holders in the Co-op by virtue of their participation in obtaining a policy through them.

Thus a Co-op can purchase insurance for its members from an insurance underwriter and sell it to its membership at a very low cost because there is no profit involved. Normally a business profit margin runs from 30-50% but in health insurance it can run far higher than that. That profit margin is saved when buying health insurance through a Co-op.

Sen. Olson has observed that the minimum of health care saving would be 20% from a Co-op and has potential for being even more. To manage to break the chain of price increases and to actually provide a viable and affordable solution then leaves more money in State residents pockets could be a competitive advantage for doing business in Minnesota.

In 2002 when I ran against Fran Bradley for District 29B as a MN Legislator, I lost, but not before I had observed that health care is imploding and then surfaced Co-ops as a solution. It is a workable plan unless it is purposely scuttled. Fran has subsequently left office and the ideas are being carried forward by DFL people from our Rochester Districts.

In 2007, the Minnesota Legislature allowed the Minnesota Farmers Union to form an Insurance Co-op and to offer health insurance coverage to its membership. It was a part of the 2007 Health and Human Services Omnibus Bill and it was for the purpose of forming a purchasing pool project and study group. This was to be done on an experimental basis and to last for four years, with oversight by the Minnesota Department of Commerce. There is no specific reporting requirement to the legislature for the pilot project.

In addition the omnibus bill included funding for a Health Plan Purchasing Pool Study Group, which met several times over the past few months and presented their findings to the appropriate legislative leaders. The leading authors of this report, Rep. Ken Tschumper, and Sen. Mary Olson, introduced legislation (H.F. 3198 / S.F.2956) to establish a voluntary statewide pool.

The Study Group produced a bi-partisan report in January of 2008 and they believe that there is a potential for the pool to offer significant cost savings.

One of the issues with health insurance is that the underwriters have been pruning out the members in the health insurance pool in order to dump people who are sick that has made the pool shrink and the remaining members have to pay higher premiums as a result. The notion of insurance is to take the risk and spread it over many payers. The underwriters have been culling out the sick and that reduces the payout for them and raising the premiums thus raising their income and improving their profit. For the buyer it means double digit annual increases. Now a falling dollar is also putting more pressure on insurance rates and will make the problem even worse.

The Study Group observed that cutting out the middle-man lowers the insurance rates and enlarging the pool also lowers the insurance rates. Other side issues are also associated with rising costs.

Some “Administrative Costs,” seem unnecessary and are adding to the cost of health insurance. For example, the lack of a standardized and uniform insurance claim processing system is thought to be adding as much as one-third to the cost of health insurance. In the past that could be defended by arguments for job creation but now as we approach a worker shortage the need for streamlining is coming up anyway and a uniform health claim processing package is going to be necessary and preferably it will be designed so that cost capture is near automatic as health care is dispensed.

Add up all of these piece parts, elimination of the middle-man, claims processing cost reduction, and a widening of the risk pool, and you have much lower cost health insurance as a result.

Portability of health insurance coverage is also important as the job market oscillates in job availability. People need to be covered for health insurance whether or not their employer is viable or has just gone out of business. If the individuals own their own health insurance policies then portability is addressed.

Access is also important consideration. Most of today’s health insurance approaches make the purchase of health insurance mandatory just as the purchase of auto liability insurance is mandatory for automobile owners. If the State makes ownership of a policy mandatory then it must assure that the underwriters do not lock the sick and people with existing illness out of the insurance pool.

The quality of the health insurance plan is also an essential component. Quality here is determined by allowing physicians to make their own judgments about the scope of patient treatment and by the breadth of health coverage using peer review to assure quality. Ideally the policy would be at least as good as the combination of Medicare Part A and Part B. In practice the underwriters could also offer policy riders that permit higher coverage than in the base policy for things like foreign travel, overseas expatriates, cosmetic surgery, and long-term care.

So far the study groups are finding that the proposals made in 2002 were sound and viable. They have defined the proposal to cover “fee for service” rather than capitated care. Some have noted that Minnesota is 11th in comparison to other states, and 9th in Access, and 12th in Quality, for unnecessary hospitalizations we are 10th, healthy lifestyle 7th. Yet to be near the top or the middle of an imploding system is all the more reason to work to stay at the top and that means adopting an improved system to replace the failing one.

We are in the 2008 legislative session now and the DFL is proposing a Minnesota healthcare insurance solution, and the issue is falling to the Governor to decide in a veto context. The outlook is poor this year as money is tight and there are upfront money considerations, the Governor opposes any new tax, and the issue is in danger of becoming partisan once more over the issues of funding.

Some groups accept the proposal and support it while others have offered constructive criticism that will impact the wording of the legislation and can be negotiated. As near as I can tell most legislators are working responsibly to obtain a solution for their constituents.

The Study Group recognizes that the State of Minnesota is a major employer and offers health-care benefits and stands to save a lot of money if insurance costs can be lowered. The savings are multiplicative. To solve the State start up exposure the Study Group proposed a loan from the health care access funds to cover the start-up costs but the Governor prefers to use that money to cover the budget short-fall. As a result the State is in grid-lock with the Governor.

The notion of a MN Health Insurance Co-op is sound and viable and if it fails to go through then we can point to partisan politics as the culprit. From my viewpoint the State is still where we were in 2002 but urgency is forcing the issue. This is good, for in policy making the only things that have a major influence on outcomes is an appreciation of a real or a coming crisis. In healthcare insurance we surely have that situation right now and it will be made worse during this recession.