The South Carolina Health Coop

In recent weeks we’ve fielded a number of questions related to the South Carolina Health Cooperative, a group formed last year by a then 20-year-old student at Georgia Tech designed to help small businesses get affordable health insurance.
The idea is fairly straightforward: Small businesses can join together in a larger association in order to spread risk through a much larger pool of people, thereby lowering their total health insurance premiums. After all – that’s the concept of any kind of insurance – you get a bunch of people together to spread the risk around and share in the costs. So the South Carolina Co-op folks, led by their young CEO, have been fairly aggressive in marketing their idea through the media and other channels.
It’s a well intentioned idea, but historically it is unlikely to succeed. Others have tried and only a couple nationwide have met with any success. As well intentioned as it may be, and as much as we love private-sector solutions, here are some concerns we have that reflect why we would not advise a small business to participate:

  • As we presently understand it, the South Carolina Cooperative currently has no health insurance carrier. Obviously this is a pretty big component of a health insurance plan, and we’d be very hesitant to join an organization like this until that piece is in place. Here the cooperative folks are in a bit of a pickle, of course, because no health insurance company is going to agree to participate with discounted premiums until they see the size and the makeup of the groups represented.


  • That brings us to the sticky issue of “adverse selection,” which is fancy insurance-speak for the idea that promises of pooling together for lower rates or getting guaranteed issue coverage is more apt to attract groups and individuals who need it most. In other words, to put it a bit crudely, the older and sicker groups are the ones most eager to get on board with a plan that promises to spread the risk around to others, which makes sense because they are the ones that stand to benefit from it the most. So you need to consider this idea before deciding to join that pool.


  • Along these lines, I’m not sure if they even have any premium estimates for participating groups, which would make it difficult for me to make that leap of faith.


  • Perhaps most significantly, the South Carolina Cooperative requires a 5-year commitment(!) from its members! To be blunt, that is absolutely NUTS! In relatively normal times, it would be unwise to make a commitment like that with your health insurance because you have no guarantee of where your premiums will go year to year, not to mention your business’s ability to pay them (as you’ve noticed, health insurance isn’t cheap!). But in the era of health reform (PPACA, often referred to as “Obamacare”), the health insurance industry is particularly volatile and uncertain. We can’t predict what’s going to be happening in 5 months, let alone 5 years!!!

Look, there is no easy solution for small businesses when it comes to health insurance. We wish we had a silver bullet. Unless and until we get real reform in the healthcare system, reform that addresses the costs inherent in the healthcare delivery system, these issues will remain vexing for many small businesses. If you’d like to discuss your particular situation and concerns, and take a look at potential solutions, we invite you to contact AC Forrest for a free, no-pressure consultation.