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A View Of Insurance "Co-ops"

Mike

Well-known member
Wednesday, August 19, 2009
Co-Ops,The Fannie Mae & Freddie Mac Of Health Care!
The past 24 hours have proven to be a confusing mess for anybody following the Health Care transformation debate. The media is reporting the White House and Congressional Democrats are all over the place concerning the status of the Government Option and overall package. Although part of this confusion has been generated by the media, I believe that we all must recognize that this in part is a confusion manufactured by the White House to attempt to ease pressure on Congressional Democrats. I for one, do not believe that the President, nor Democratic leaders will back away from the Government option.

Over the past 2 days, an increasing number of Democrats have suggested the creation of Co-ops to replace government run health insurance. The media has portrayed this as a move to be able to pass Health Care Reform while providing an option for those who have none. However, let's get the record straight on Co-ops in terms that every American can understand.

A Co-operative as pushed in this legislation would become a partnership between the government, the insured, and most likely an existing insurer with an existing claims and marketing structure in place. Under the co-op guidelines, the insured would have certain ownership rights in this non-profit entity, however, those rights would be outlined at the creation of the co-op and would most likely be limited to voting rights for a board of directors. The co-op would then operate as a non-profit, privately owned health insurance company. The idea again being that as a non-profit entity, they could bring down Health Insurance rates. The preceding is a general outline of the theory of a co-op, but will it work this simply in reality?


NO! And here is why...

Do not confuse this with your local farmers cooperative or utility cooperative, it isn't. Years ago, the government facing continuous instability in the housing market, created two government backed, but privately owned entity's whose duty was to bring stability to the housing markets by re-insuring mortgages and setting standard guidelines across the industry. The idea was sound, but in reality, these so-called private institutions were continuously forced to adopt business guidelines and procedures by the government who maintained legislative and subsiditive control over these companies. As a result these two corporations were forced to abandon sound survivability practices, underwriting procedures and lending practices. The companies created new reinsurance mechanisms (i.e. mortgage backed securities) that now hid risky assets and cooked the books with no regard to the survivability of their companies or effects on the overall housing markets. The leadership of these companies made millions, the politicians turned a blind eye because home ownership was at record levels and neither had concern because they all knew that if the companies began to fail the government would bail them out.

We know these companies as Fannie Mae and Freddie Mac, and today we are still providing billions of tax dollars to these giants because they, through greed and legislative control, abandoned sound business practices and heavily damaged the credit markets.

The Cooperatives now being discussed by Congressional Democrats would be no different than Freddie mac or Fannie Mae. The policyholders nor the board of directors would not be in control of the company because Washington would control the massive subsidies flowing into the company. As a result, these cooperatives would be forced to abandon any actuarial or claims paying basis for establishing premiums and undercut the insurance marketplace. The company would not have any substantive underwriting procedures in place because the government would not allow them and the increasing number of insured and lack of sound underwriting and business practices would create massive losses leading to more government support and more legislative control. You can not run a successful business when politicians, driven by the pandering issue of the day, continually lessen your business standards, all the while calling for lower premiums, lessened payouts to health care providers and greater control over the approval of procedures. Within a few years, these co-ops will have heavily damaged the private insurance sector, provided coverage for a major portion of the nation and have instituted cost controls that damage health care providers and restrict access to care. In other words, within just a few short years, these cooperatives will have become the government option.
 
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