Health insurance is a classic mature industry; consolidating, dominated by a few very large players, very difficult to enter, price-driven.
Big insurers have many advantages over new entrants:
- their market share enables them to drive hard bargains with doctors and hospitals, getting the best prices;
- the huge costs of IT systems and integration thereof are spread across scores of millions of members, not tens of thousands;
- they have established brands, making them more attractive to consumers; and
- they have terabytes of data on everything from provider practice patterns to consumer spending habits to drug dispensing, allowing them to predict costs, trends, and expenses with far more accuracy.
Co-Ops, those not-for-profit, consumer-driven, local health insurance outfits were going to challenge the big boys, relying on great service, intense marketing, and local knowledge to carve out a niche in local markets.
And the ACA had provisions specifically designed to help them develop, grow, and become viable competitors – in local markets – in an industry dominated by behemoths. These provisions included “risk corridors”; financial vehicles designed to help health insurers entering markets by offsetting initial losses by transferring profits from their wealthier competitors.
The idea was to force competition into a market where size is all that matters, where it is all but impossible for new, entrepreneurial competitors to start, much less succeed.
Those provisions disappeared, killed off by a Congress ostensibly interested in the competition and the free market. Specifically, Sen Marco Rubio inserted the clause in the Cromnibus bill that prevented the Feds from moving money around to cover the Co-Ops’ losses in 2014.
Let’s remember that the risk corridor payments were to be budget neutral over the three year lifespan of the program. The Rubio amendment (Section 227) forced CMS to shift that to a “pay as you go” model.
Lest anyone think this was a new thing, recall a similar program was implemented by George W Bush and his GOP allies in the Medicare Part D program.
Here’s the net. A politician scores political points by killing a program his own party used to pass the biggest entitlement increase in 50 years.
And in so doing, he killed off competition in the industry that needs it more than any other.
What does this mean for you?
Less competition will lead to higher prices and poorer service.
Thanks, Marco.
The political climate today is such that certain politicians find it to be more palatable to condemn the majority of their constituents to higher prices, fewer services, and less opportunity in order for them to score political points and win favor from their donors.
As a resident of the overdeveloped swamp known as Florida, I can state that Rubio does not represent me. It sad to say, but the party of Lincoln and Teddy Roosevelt has lost its collective minds. Oh, I forgot, they hate collective anythings, like health care for all.
The comment, “offsetting initial losses by transferring profits from their wealthier competitors,” sounds a bit like a modern day Robin Hood. Perhaps an alternative solution would be to limit the size and power of the”behemoths” to allow for reasonable competition.
Thank Goodness Rubio stepped in and stopped the flood of taxpayer dollars going down a rat hole.
If you’re on Medicare, you’re grateful to Bush & a bi-partisan Congress for using risk corridors to stabilize the new Part D Rx program.
If you go to Speaker Paul Ryan’s web site, you will find a similar plan.
Bob – thanks for the comment. One factual correction – Part D was NOT passed by a bipartisan Congress – only 2 Democratic Senators voted for Part D.
In large part the lack of support from Dems was due to the unfunded nature of Part D; the latest Medicare Actuary report indicates the ultimate unfunded liability for Part D is in excess of $16 trillion.