When building a business plan, identifying a timeframe for financing and revenue is essential. Many businesses start up with the expectation of not showing a profit for several years. During this time they rely on loans or other sources of capital to sustain them. If that financing disappears before the business has reached profitability, there is nothing else for the business to do but fold.
This is exactly what is happening to Consumers’ Choice Health Insurance Company, South Carolina’s health insurance cooperative established under the Affordable Care Act. Today it was announced that the company will be closing its doors and its 67,000 policy holders, individuals and small businesses, will need to find coverage from another insurance company offering policies in the federal Health Insurance Marketplace.
Under the Affordable Care Act, private, non-profit co-ops like Consumers’ Choice were set up in 23 states with federal loans to promote competition in the Marketplace in an effort to keep premium increases as low as possible. To help these co-ops and other existing insurance companies through the early years of the new Marketplace when they might experience more losses than anticipated, the feds promised to infuse them with payments for some of their losses from a “risk corridor” program. It is this risk corridor program that the federal government will now only fund 12.6% of the requested loss reimbursements.
The business plans of Consumers’ Choice and the other state co-ops have now been obliterated and most if not all will close their doors. And while the co-ops are on the hook for repaying the federal loans, the residents of the states impacted and the whole nation are the real losers.
Not only will this be an inconvenience to the co-op policy holders, premiums will naturally rise for every Marketplace individual and small business customer due to less competition.
Let me make this very clear. The idea of using public funds to create competition within the health insurance industry was a good idea. The co-op plan was selected because private health insurance companies successfully fought the federal government creating a public health insurance option as competition. Had the latter idea won, we probably wouldn’t be having this problem today.
Never-the-less, the co-ops had a shot at surviving. Consumers’ Choice was one of the best co-ops in terms of revenue and policyholders. It was providing a valuable service to all South Carolina health insurance customers regardless of their insurance company. And it was only a few short years from being successful.
Having been involved in the very early effort to establish a co-op in South Carolina, this debacle is also personal. It should also be personal for President Obama who should step in and fight to make good on the commitment made to the co-ops by his signature legislative achievement. Otherwise the success to date reining in premium increases will start to unravel along with the promise of Obamacare.