Daily Archives: December 30, 2014

CoOportunity Health Isn’t An Obamacare Problem

CoOportunity Health Isn’t An Obamacare Problem, It’s A Cooperative Problem – Forbes.

Where does a Coop go when it needs additional funding?

That’s the problem with getting rid of the capitalist, The Man. For what the capitalist provides is capital. And if you’re a coop and you’ve not got enough capital then where do you go and get it from? Your customers (in this case) aren’t really all that likely to be willing to cough up a capital issue to support the organisation. But they’re, nominally and legally, the owners of it. So they’re the only people who can cough up that needed capital.

As I say, this isn’t a problem with Obamacare as such. Rather, it’s a problem with a certain romanticism about cooperatives. They’re really not very suited to an industry that has large capital requirements. Because neither the consumers (customers) or the workers, the people who dependent upon flavour of coop own it, have much if any capital to put into a capital intensive business. Sure, as here this can be covered by loans at the start but once losses occur there’s no possibility of having a rights issue or the like in order to repair the legally necessary capital ratios.

Coops are lovely things and, ardent free marketeer that I am, I’m all in favour of a market in forms of business organisation just as much as I’m in favour of any other form of market. But it would be useful if people thought a little about which business sectors might be appropriate for an organisation without deep access to capital to enter and which might be inappropriate. And a market that requires substantial amount of regulatory capital really might not be one of those business sectors that are really suited to coops.

Yes, I do know that there are coops in all of these sorts of areas, insurance companies, banking institutions (at least in my native UK there are) and in health insurance as well as other insurances. But they are all organisations that started small and have grown over time (decades at least) and been able to retain earned capital to meet those various legal requirements. The idea that a new market entrant, needing in excess of $100 million in capital even without the possibility of calling for more if there are losses is a good market for a coop to enter seems to be odd, most odd.

What Mr. Worstall doesn’t address is why did/does CoOportunity need more capital?

The answer is quite simple, they mispriced their policies. The question is, did they do this on purpose or due to incompetence? Also, can we detect this category of error in other Health Insurance Cooperatives before they waste any more of the publics money?