Wayne O’Leary

Obamacare’s Saving Grace (Maybe)

As discussed in a previous column (3/1/15 TPP), American medicine in 2015 is well on its way toward becoming an entrenched corporate health-care system, courtesy in large measure of the Affordable Care Act (ACA) passed in 2010. While the ACA, or Obamacare, did not create this inexorable trend, which dates back 30 years or more to the rise of the for-profit HMOs, it did nothing to reverse it and actually speeded the process through a policy of marketplace incentives.

The evidence of what the relentless corporatization of health care means is all around us. Consider UnitedHealth Group, the country’s largest medical insurer, dropping thousands of practices from its Medicare Advantage network of approved doctors to cut costs and increase profits, while its consulting arm tutors hospitals on how to maximize Medicare billing. Or consider Anthem (ex-Wellpoint), the second-largest insurer with its roster of for-profit Blue Cross plans — many of “the Blues” ceased being nonprofits in the 1990s and later affiliated with Anthem — moving from ACA critic to ACA booster as it becomes the dominant player on the Obamacare insurance exchanges, then proceeds to pursue double-digit rate increases.

Obamacare could have slowed the negative momentum by including a public-insurance option to provide real competition for the private-sector companies; obviously, that didn’t happen, and we’re left with exchange plans typified by restricted provider networks and high deductibles. Marketplace rivalry among participating companies was supposed to minimize such problems, but many predominantly rural states have few insurance choices, and plan availability varies widely even from county to county. At the end of last year, for example, two states had only one private insurer on their federal exchange, six states had two, and five others had three. Those figures are expected to improve in 2015, but any way you slice it, that’s not much competition.

More troubling is the emerging tendency for premium rates to fluctuate annually and from place to place, generally trending upward and leading Obama administration officials to urge policy holders to revisit the exchanges each enrollment period to ensure the cheapest available plan in their region and coverage category. Few are apparently doing so, a phenomenon New Yorker economics columnist James Surowiecki recently chalked up to “consumer inertia” arising from both tangible switching costs and intangible hassle costs. The old aphorism “Life is too short” applies here.

Of course, the insurance companies are students of human nature, and they’ve factored psychology into their marketing approach. The standard tactic is deceptively simple: Offer low-cost, comprehensive plans initially to capture a customer base, then raise rates and cut benefits in the out years with the expectation that most customers will not change carriers or policies, but allow themselves to be automatically reenrolled in the same plans, as the law provides; it’s cynical, but effective.

As we enter the ACA marketplace’s second year, the corporate strategy appears on track; plan switching remains rare, notwithstanding a report from the Department of Health & Human Services (HHS) that average monthly premiums (after tax credits or subsidies) on the federal exchange will jump from $82 in 2014 to $105 in 2015, or from $984 a year to $1,260 — not a king’s ransom, but nevertheless a 28% increase.

Fortunately, despite the absence of a public option, there is a fallback position with the potential to frustrate the corporate insurance juggernaut and offer genuine financial relief to health-care consumers. Little noticed in the text of the massive 2010 health law is a provision for the establishment of nonprofit “consumer operated and oriented plans,” or cooperatives. The brainchild of former Sen. Kent Conrad (D-N.D.), it was inserted in the Senate Finance Committee’s draft of the health-reform bill as a sop to liberals disappointed by the loss of the public option and as a private-sector alternative acceptable to anti-government Republicans and conservative Democrats on the famously “bipartisan” committee chaired by then Montana Democratic Sen. Max Baucus.

Conservatives, who were giddy at the prospect of killing the public option, may now be having second thoughts about the substitute they regarded as harmless. Health co-ops, operating thus far beneath the radar, are slowly but steadily growing under the auspices of the ACA; there are now 26 up and running across the country, most in the cooperative-friendly West and Upper Midwest, but also (surprisingly) in urban New England and even in the conservative South.

Like so many good ideas that progressives have, this one, too, grew out of the New Deal. Beginning in 1937, hundreds of rural health co-ops were sponsored by the Farm Security Administration (FSA), the federal agency John Steinbeck fans may remember from The Grapes of Wrath as a benefactor of the migrant Joad family. Government support was withdrawn in 1947, and all but a handful of the New Deal medical co-ops eventually disappeared, but the idea was never forgotten.

The modern iteration of the health co-op movement also faces an uncertain future; individual entities are created by consumer groups, doctors, or membership associations, but depend on the federal government for seed money. Initially, that was to take the form of ACA grants, but insurance-industry lobbying pressure forced a rewrite of co-op enabling procedures to require repayable loans instead (from the HHS Centers for Medicare and Medicaid Services), and congressional budget cuts later reduced the amounts available.

The burden of loan repayment, combined with fewer economies of scale compared to the big insurers in contract negotiations with health-care providers, has made the undercapitalized co-ops competitively vulnerable. Nevertheless, most are so far holding their own — and more. A majority have actually reduced their premium rates for 2015, according to analyst McKinsey & Company, which also reports that 37% of the lowest-priced health plans in states with co-ops on their exchanges are co-op plans.

Cooperatives are also moving aggressively across state lines. Massachusetts-based Minuteman Health is now selling its inexpensive plans on the New Hampshire exchange, as is Maine Community Health Options, which already has over 80% of its own state market; Montana Health Co-Op has taken almost half of Idaho’s exchange customers away from dominant Blue Cross; and Kentucky Health Cooperative will shortly be active in neighboring West Virginia.

Predictably, the for-profit insurers, represented by their lobby America’s Health Insurance Plans (AHIP), are outraged by this competition and threatening to withdraw from the exchange market unless cooperatives are limited in their promotional activities and taxed as for-profits. If the co-ops can survive the corporate assault, we may ultimately not miss the public option.

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy.

From The Progressive Populist, April 1, 2015

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