Skip to main content

5 Challenges for CO-OPs

 |  By Margaret@example.com  
   September 07, 2011

In July the Department of Health and Human Services announced proposed rules to regulate the creation of consumer-operated and -oriented plans, or CO-OPs. With the October 17th application deadline fast approaching it seems like good time to take another look at CO-OPs to assess their likelihood of success.

CO-OPs are designed to be non-profit, member-governed health plans that create another consumer option for cost-effective healthcare insurance.

When the program was first announced, Courtney White, a principal and consulting actuary in the Atlanta office of Milliman Inc., explained in an interview with HealthLeaders Media that "CO-OPs will look like a regular insurance company. They'll take risk, make reimbursements and process claims."

He identified accountable care organizations, integrated delivery systems and chambers of commerce as likely candidates to form CO-OPs.

HHS will kick-start the CO-OPs process with $3.8 billion in loans, or about $100,000 per applicant to help fund feasibility studies and business plans. 

Analyst Bradford Gray, Ph.D., wonders if that will be enough to guarantee the success of this latest option to individual and small business healthcare coverage. Gray, a senior fellow at the Washington, D.C.-based Urban Institute, a nonpartisan policy research organization, explained  that "CO-OPs may become important insurance options in some markets, but it is difficult to foresee their having a transformative effect that was expected of the public option."

In his report, CO-OPs: An Early Assessment of Their Prospects,Grayidentifies five challenges he says CO-OPs face for long term success:

1.      Building the provider network and administrative structures. Attracting members and sustaining growth will depend on having a network of providers who deliver quality care at a cost that allows the CO-OP to price itself competitively and not lose money. Contracting with providers is a difficult and time-consuming process that requires a sophisticated infrastructure to deal with administrative matters such as marketing and network management as well as utilization and cost management. At first many CO-OPs will probably need to rent a provider network and obtain administrative services from an existing third-party administrator. That can be expensive.

2.      Building enrollment. This is important for economies of scale and negotiations with providers, but no one knows who will really be interested in CO-OPs. At least 25,000 enrollees and a minimum market share of 5% will be needed to achieve financial and operational stability. CO-OPs that already have access to potential enrollee populations will have an advantage. Gray suggests that the best way to quickly build membership will be to gain access to groups that already exist, such as labor unions, employer associations or a self-insured medical organization. Remember, CO-OPs will face competition from health insurance exchanges so being ready to accept enrollment during the October 2013 open enrollment period before HIX open for business a few months later will be critical.

3.      Overcoming the prohibition on marketing. The Affordable Care Act prohibits CO-OPs from using loan funds for marketing, which could make it more difficult at startup to reach potential enrollees. Marketing is a significant expense for health plans and will be particularly important for new plans.

How the legislation's restriction on using loan funds for marketing is implemented in practice will be important.

4.      The danger of adverse selection. The mix of enrollees will be important. Established competitors will probably be more skilled at attracting the healthiest patients. CO-OPs will need to set premiums low enough to attract enrollees but high enough to cover costs.Setting premium prices for people who have been uninsured will be difficult because so many of the new enrollees will have a backlog of unmet medical needs.

5.      Making member governance work. Plans will need board expertise in finance, strategic planning, product development, contracting, actuarial functions and medical management. The proposed HHS rules require that CO-OP boards be elected by members and that CO-OP members account for a majority of the board. Boards can include experts who are not plan members as long as the nonmember experts account for only a minority of the board. Given that limitation, the challenge will be to make sure the membership of a CO-OP includes as many experts as possible so needs in finance, strategic planning ,etc. can be met.

Despite these challenges, Milliman's White says CO-OPs "will still have a great story to tell: 'We're member-run and we put our profits back into the business to lower member premiums, and to improve member benefits and care.'"

Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
Twitter

Tagged Under:


Get the latest on healthcare leadership in your inbox.