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I woke up this morning to find that the government was getting back into the business of playing favorites by loaning money (at very low rates) to certain organizations that promise to launch consumer governed health plans in eight states currently and eventually all 50.  I guess I knew this day was coming, but in light of the health reform debate in the Supreme Court I was surprised that these companies are getting funded so soon.

And as you read this article (assuming anyone is still, actually reading this) keep in mind that these plans will be exchange friendly not agent.  At least 50% of the people that buy insurance need to be guided by an agent.  This is not a #4 at McDonald’s, this is health insurance.

Seven organizations were lucky enough to split $639 million in start up costs to launch these plans in 2014.  They will be sold on the health insurance exchanges and not necessarily by agents and between the exchanges and these plans, agents are likely to go the way of the Israeli spotted owl (blown up in a suicide attack).

Eventually one of these non profit plans will operate in all states.  What a great idea!! Non profit plans!  Actually these already exist of course.  For instance in Florida there are 2 including the tiny Blue Cross of Florida and Avmed.  Interesting point, these 2 plans are no cheaper than the for profit carriers!  In fact in Florida they are both more expensive in most demographics.

So basically the government will hand out interest free loans to public health activists, medical associations, business groups, hospital executives, labor unions and anyone else that has either friends in the administration or is particularly adept at filling out forms.

The goal of these co-ops is to supposedly increase competition among insurers which should in theory reduce premiums and/or improve health care quality and customer service.  In some states, this is a good plan like North Dakota where only one or two insurers control the bulk of the health insurance business.

But in most states these new entrants will be flayed by the existing network of agents and direct sales and because of scale they will be unable to offer lower premiums.  Not too mention hiring experienced people will be difficult as will building a large enough base of members virtually overnight.  Whats the track record on nonprofits?  Most of them have either gone out of business or were sold or converted to for profit.  And of all the consumer governed insurers only 2 million Americans are still covered by them including Group Health and HealthPartners.

So if you are looking for a new business and fill out the form properly or have a friend in Washington you could easily get a $15 million startup loan and another $100 million for reserves.  Interest is less than 1% and the payback period for the startup loan is 5 years and 15 for the reserve loans.  Once the 3.4 billion reserved for this function is used the program is over.  So hurry up and start your insurance company!!

The government is guessing 40% of these companies are likely to fail, but if it is anything resembling the public sector, only 10% will likely survive!

So in conclusion, what is the right answer?  Well the right answer is for every American to pay a tax and have a single payer plan like any normal bankrupt European nation, but this messy legislation is right up there with the tax code and will be costly and stupid.  Repeal this nonsense Supreme Court!  And then lets get a handle on medical inflation.  Once we do we can pass a serious reform or a single payer plan.

 

 

Jeremy Ehrenthal

Jeremy Ehrenthal is a partner at East Coast Health Insurance, a national brokerage for individual, group, and Medicare health insurance plans. East Coast Health Insurance is committed to providing honest opinions of the insurance industry, giving the consumer as much information as we can. From underwriting guidelines to public health plans, our agency pushes the limits of tradition in order to give people more access to care. As an internet company, our site provides every possible resource on health insurance imaginable so that any reader can understand a health plan, the industry, and their rights. With the individual in mind, our Health Insurance News blog maintains the transparency of our agency, giving accurate updates on the nation's health care and insurance systems. The blog is also a great place to find local Florida health insurance news, as the agency is headquartered in Broward County and dedicated to providing the state with current events and industry happenings.

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