Earlier this month, the scale tipped against the country’s health insurance co-ops. Half of the newly minted organizations created under the Affordable Care Act have now failed, confirmed in congressional testimony by CMS Chief of Staff Dr. Mandy Cohen.
The twelfth of the 23 nonprofit co-ops to fail was Consumers Mutual Insurance of Michigan, and now just 11 of the firms are left offering insurance on the exchanges for the coming season. All told, the 12 collapses will disrupt insurance coverage for 740,000 individuals and small-business employees.
Opponents of healthcare reform have pointed to these dismal statistics as evidence that the program was ill-conceived and is headed for eventual failure.
That’s ground that progressives are not quite willing to cede, however. Zeke Emanuel – a bioethicist at the University of Pennsylvania and broker of President Barack Obama’s former chief of staff – told MSNBC the failure rate is not that unusual for new businesses.
“When you start businesses in America, at the fifth year, half of the businesses have closed,” Emanuel said on November 3. “The idea that some of these co-ops are going to work and some aren’t should be expected. That’s what business is about. The idea that 100% will succeed is a false metric we don’t hold the private sector to.”
That comparison is not quite accurate, though. An analysis of Emanuel’s statement by Politifact suggests that the age of most of the co-ops is not quite at the five-year mark. On the outside, most of the businesses are three years old and as a general rule, the younger the company, the lower the failure rate.
In fact, the failure rate at the three-year mark for all American businesses and for the broader finance, insurance and real estate sector is 34%. The co-ops have failed at a rate of greater than 50% - about 40% faster than is average.
“The underlying comparison is flawed,” the Politifact report says. “Interviews with experts, government audits and regulators’ actions point to three years as the typical lifespan of a failed co-op.
“About 50% of the co-ops shut down. Compared to the three-year failure rate in America, the co-ops have done much worse.”
However, the report stops at suggesting the co-ops are destined for failure. If the remaining co-ops are still running in early 2017, the groups’ failure rate will be close to the national average.
The National Association of Insurance Commissioners has not made any definitive statements about the future of the co-ops or the reasons for past failures. Instead, they point to a number of contributing factors that explain the collapse: the fact that the companies were new, a lack of consumer knowledge about insurance and co-op offerings, and a very competitive marketplace in most regions.
