Money doesn’t grow on trees, and other “healthcare co-op” surprises

This, from Sunday’s Chicago Tribune, “Insurance startup’s slowdown discouraging“:

The recent demise of several Obamacare-spawned health insurers across the country has raised concerns about the future of Land of Lincoln Health as it enters its third year of open enrollment Nov. 1. . . .

Land of Lincoln was set up by the federal government to provide an alternative for individuals and small businesses in Illinois, one of the least competitive health insurance markets in the country, according to the American Medical Association. . . .

The challenges Land of Lincoln faces are partly out of its control, Montrie said. Under President Barack Obama’s health care law, insurance companies must sell policies equally to everyone, regardless of medical history. The Affordable Care Act established three programs to protect insurers, including giants like Blue Cross, UnitedHealth Group and Aetna, from the financial risk of ending up with an unhealthy pool of customers.

But one of the programs known as risk corridors became the subject of political debate last year after some Republican lawmakers called it a massive bailout that could cost taxpayers billions of dollars. In a 2015 budget bill, Congress specified that the risk corridors program had to be self-financing, meaning that the payments to the insurers could not exceed collections from those that made money on their marketplace business. . . .

Now, it’s not news that the co-ops are struggling, if not failing; Megan McArdle had a brief write-up on this not long ago.  It was a fantasy that the big bad insurance companies had it within their power to provide lower prices and better customer service but just chose to spend all that money on executive bonuses instead, due to cartel-like price-fixing, so that all you needed was to inject a non-profit instead.  After all, the Blues were originally non-profits, though many have since turned to for-profit status in order (I think) to be able to gain capital by issuing stock, and the article itself recognizes the pitfalls of being a non-profit:  “If it added more customers, Land of Lincoln would need more capital to meet regulatory requirements, Montrie said. As startups and nonprofit companies, co-ops are finding it very challenging to raise additional money.”

And the story of the co-ops’ failures has been well-documented.  Besides which, the sole comment on this story points to the “Land of  Lincoln” facebook page, in which multiple “visitor posts” complain about exceedingly poor customer service.

But what surprises me is this:

That anyone’s surprised at this turn of events.

That the “risk corridors” were perceived of not as a risk management mechanism, but as flat-out subsidies.

And that these entities are, apparently, not true co-ops; that is, the name “co-op” is officially an acronym for “Consumer Operated and Oriented Plans.”  A co-op is a specific type of member organization; see this lengthy treatment in Wikipedia.  I tend to think of co-ops in the U.S. primarily in terms of farmers and grain elevators.  Now, Land of Lincoln as a corporate entity is a mutual insurance company, and, so far as I can tell, operates under the same governance structure as any other such organization, but what really distinguishes it is that it got its start up funds of $160 million from the federal government.  Other than that, so far as I can tell, its corporate structure is the same as any other mutual insurer (here’s a list, from wikipedia).