Why health insurance coops may not work.

In recent weeks people at all levels have been talking about the wonderful things health coops can do. For those of you unfamiliar with the concept, a health coop is in reality an insurance company owned by the policy holders. See the wiki article on health insurance cooperative for a short and fairly unbiased exposition of this concept.


Sounds good, right? On the surface, yes, but when one dips below the surface one finds some troubling things, not unexpected to anyone who knows anything at all about insurance theory.

The one that people point to as an example is the Group Health Cooperative, (GHC) headquartered in Seattle. Let’s assume that you want to join GHC. What do you have to do? Well, make an application, of course. You can enroll by mail, and this URL shows what you need to do:


Wow. You have to fill out a health questionnaire, not only for yourself but for every member of your family. The form you have to fill out is the one used by the Washington State Health Insurance Pool, which exists to provide insurance. The biggest part of that form is disclosure of pre-existing condition for over 200 health issues, ranging from blindness to cancer to ADHD to AIDS. Why are you filling this out? It’s a cooperative, membership is voluntary, and you are volunteering to be a member.

Oh, it’s voluntary all right, but not in the way you might think. It’s voluntary on their part whether they accept you. They are going to score your health questionnaire, and if you flunk they are not going to insure you. Don’t believe it? Start by looking here:


Acceptance of application: Group Health’s* acceptance of you and your dependents for coverage is based upon the score determined by the Washington State Health Insurance Pool (WSHIP) Standard Health Questionnaire(s) unless
exempt by the questionnaire’s requirements unless an exemption under the law applies. In order to process your application, Group Health must receive the Individual & Family plan application signed by you and your spouse/domestic partner, the signed questionnaire(s) for each family member to be enrolled, and a Certificate of Creditable Coverage (if available).

The WSHIP score runs from zero up, and if you or any of your family members score over 325 then you will be diverted into the WSHIP program for people who can’t get health insurance in the private marketplace because they are at 325 or above.

Here’s the score sheet:


Take a look. If you have AIDS you automatically score 325.

Down’s syndrome 325

Type 1 diabetes: 234 to 325 points

Obesity (BMI 40 or above) 325 points

You get the picture. GHC is not going to insure you if you have certain preexisting conditions. And there are a lot of them that are automatically 325 points. Take a look. And if you have several conditions that total up to 325 you are out of luck.

What’s the point of all this? It’s to show you that even in the most seemingly benign of organizations they are still skimming the well people off and leaving the sick ones to go and get into a substandard plan elsewhere. Of course their premiums are based on insuring healthy people, and in spite of this they lost millions of dollars last year. Go look at their annual report for 2008. They lost over 8 million bucks, where the previous year they made about $72 million. Interestingly enough, other information indicates they took a monstrous bath in the securities market, leading to the loss for 2008.

This practice of skimming off the good risks is one of the things that the proposed health insurance reforms would do away with.

Food for thought.


  1. Carl Nemo

    Thanks Gazelle1929 for supplying a nicely written piece concerning co-ops.

    “This practice of skimming off the good risks is one of the things that the proposed health insurance reforms would do away with.” extract from commentary

    Maybe this is the way it should be for a soundly managed co-op or health insurance of any kind including one provided by the Federal government. Why should they take on a bunch of folks that are surely going to cost a bundle to maintain with the end result of wrecking the bottom line and the ability to provide good to excellent care for the lower risk profile members.

    One thing I find interesting is that they had a loss of 8 million in 2008, but a profit of 72 million in 2007. So to me this sounds reasonable in that a “responsibly” managed co-op should maintain necessary reserves for the bad years. The money should be kept either in cash or extremely low risk, low Beta utility stocks that pay fat dividends or ute bonds etc. There a still a number of securities in this category that not only pay healthy dividends, but offer many years of dividend growth too.

    I haven’t perused their investment portfolio; ie., if I can gain access to it, but if they are involved with speculating in high to higher risk growth stocks in a health insurance portfolio then I would think that is risky management of co-op resources.

    In the case of people with a score higher than 325 you mention they are diverted into the WHSIP for higher risk profiles. One thing that could be done by statute is that these co-ops and other insurance schemes need to pay into a fund that supports such extraordinary medical care programs for these high risk candidates so the taxpayer won’t simply get stuck with the expense. This would also spread the expense of the state accepting higher risk personnel which is presumably taxpayer subsidized.

    These risk premiums should be high enough that they may rethink some of their acceptance criteria in order to keep rejections to a minimum thus lowering the higher risk pool premiums being levied upon them by the state. The premium could be indexed to a rejection coeficient; ie., the greater the rejections the higher the premium and the lower the number less so. Of course the books of these co-ops would be subject to state scrutiny and auditing.

    Anyway I found your article quite interesting. : )

    Carl Nemo **==

  2. bryan mcclellan

    If and when this nations realities come to roost,
    we’ve got to take the determination that it and the administration of such healthy living will be free as well as equitable.
    There really can be no middle ground.

  3. gazelle1929

    TINSTAAFL. There is no such thing as a free lunch. In the long run all payments come out of a human being’s pocket.

  4. Carl Nemo

    Hi Gazelle,

    We’re headed for more government whether we like it or not, but there’s no reason why the government could not run an efficient, patient friendly program rather than another byzantine, crippled nightmare along with the billions that will be either outright stolen or mismanaged. The government’s track record to date indicates that it’s incapable of running any program effectively.

    They rushed through the Patriot Act, unread, in fact, enough copies weren’t available for Congress to peruse or spend any time debating this rights destroying monstrosity. It’s on the books and has been so with zero new discussions on seriously amending it in order to make it Constitutionally friendly or to simply dump it.

    It will be the same with HR3200 if its passed in its current form. Once lower level Medicare bureaucrats become involved with the interpretation of the bill, it will be discovered in short order that the entire package is another Congressionally sponsored legislative nightmare.

    Our Congressional and Executive Branch leadership are both corrupt so the bills they continually pass are rife with corruption as themselves and all to our peril.

    The following is illustrative of our ever bumbling, failing government…

    The U.S. Postal Service was established in 1775 – they’ve had 234 years to get it right; it’s now broke.

    Social Security was established in 1935 – They’ve have had 74 years to get it right; it’s broke.

    Fannie Mae was established in 1938 – They’ve have had 71 years to get it right; it’s broke.

    The War on Poverty started in 1964 – They’ve had 45 years to get it right; $1 trillion of our money is confiscated each year and transferred to “the poor”; it hasn’t worked.

    Medicare and Medicaid were established in 1965 –
    They’ve had 44 years to get it right; both plans are broke.

    Freddie Mac was established in 1970 – They’ve had 39 years to get it right; it’s broke.

    Trillions of dollars in the massive political payoff called the TARP bill of 2009 shows NO sign of working.


    There are many more examples concerning this massive parallel failure rate of our “government gone wild”.

    So with almost a perfect 100% failure rate and a record that proves that “services” our government shove down our collective throats are failing ever faster, they want Americans to believe they can be trusted with a government operated health care system; ie., 15% of our economy? Are we crazy? It surely seems so!

    Truly, the inmates are running the asylum. So what does this say about voters who put such chronically irresponsible leaders in office? Maybe we need to let others in on this ‘sterling’ government performance record before 2010. It seems the best cure is to vote against against all incumbents regardless of party affiliation and start over.

    That’s about all we have in our arsenal as citizens that might facilitate a radical sea change, shy of outright revolution… : |

    Carl Nemo **==

  5. almandine

    I find your article interesting, just not compelling.

    Anything that legislation to enact a “public option plan” could accomplish could also be accomplished with regard to establishing a coop.

  6. woody188

    Since all insurers now have you fill out a health questionnaire and skim the healthy and leave out the sick what you are essentially saying is that a co-op would not be any better. Except that maybe a co-op would cost less because the profit motive beyond employee and business costs are removed since the “investors” are the recipients of the health care benefits. Therefore, any excess profit should be directed toward lowering benefit rates. This does require having truly honest and genuine folk working for the co-op, something that is in short supply these days, making the possibility slim.

    I also think a successful co-op would be infiltrated and destroyed from within. Corporate espionage does exist. Or they can just destroy the markets these entities use to make interest on pooled money, just like in your example and what has occurred to pretty much every pension system in the USA.

    Congress is elected to represent, not to direct, the people.

  7. mikeoliphant

    If you watch cable news at all, you’ve seen the ads for “health care reform”, now being called “health insurance reform”. “It is an interesting subtle switch in language”. Mike Oliphant runs a small Utah health insurance website http://www.BenefitsManager.net and http://www.dentalinsuranceutah.net whom deals with people day to day struggling to find affordable coverage. “I think it’s important to not understate the huge difference in meaning between “health insurance reform” and “health care reform”. Let’s not lose focus on the need to reform a broken health care system which includes not only health insurance carriers but also billing practices of medical providers. Why isn’t TORT reform part of the national discussion? Studies show that alone could lower costs by 15% for both the medical professionals and health insurance carriers (Humana). Perhaps the federal government should take notice of what Utah has accomplished with first step of health insurance reform and promises for reform in the medical provider arena. Several interesting changes took place with the passage of H.B. 188. House Speaker Clark has championed the need for change while recognizing the experience of the private health insurance sector. To see more about this visit http://www.prweb.com/releases/utah_health_insurance/health_care_reform/prweb2614544.htm

  8. gazelle1929

    Yup. Tort reform works. Sure does. Look at Texas. Since they instituted tort reform back in 2003:

    “So this lowered the cost of health care in Texas and made it more accessible, right? Well, no. For several years, Texas has had the highest rate of uninsured citizens in the nation. That rate has continued to rise since 2003, and at times it has risen even faster than the rate of uninsured in the rest of the nation. In 2008, the Robert Wood Johnson Foundation found that Texas health insurance premiums increased by 40 percent from 2001 to 2005, which was the third fastest increase in the nation. So all those physicians moving into Texas may find themselves short of paying patients.”


    Now I don’t have anything against tort reform, particularly when it comes to punitive damages, but let’s be realistic about the claims being made.

    And also please stop using these blogs, particularly mine, to advertise your business. Tacky tacky tacky.