CO-OPs a Health Plan Alternative

It looks like health insurers will have some competition for customers when affordable insurance exchanges open for business in July 2014. On Monday the Department of Health and Human Services announced a proposed rules governing the creation of consumer-operated and- oriented plans, or CO-OPs.

CO-OPs will offer healthcare coverage to individuals through the AIE and to small businesses through the small business health option programs or SHOP exchanges. The private, non-profit, member-governed health plans are designed to create another consumer option for cost-effective healthcare insurance.

The proposed rules set four requirements for a CO-OP: It must

1. Be non-profit,
2. Use an integrated care model,
3. Be member-run, and
4. Be approved by the state insurance department

“CO-OPS will look like a regular insurance company. They’ll take risk, make reimbursements and process claims,” explained Courtney R. White, a principal and consulting actuary in the Atlanta office of Milliman Inc., who authored a brief about CO-OPS.

WEBCAST: Cultivating Physician-Hospital Alignment in the ACO Era
When: July 20, 2011
Register today for this live event and webcast

Interest has been slow on the uptake but is catching on. White suspects that as presented in the Affordable Care Act, CO-OPs may not have looked very sophisticated, but with the ACO movement and integrated delivery systems in place “there is a structure to them; they aren’t just thrown together.”

Provider groups and associations have recently expressed interest in CO-OPs. He identifies accountable care organizations, integrated delivery systems and chambers of commerce as likely candidates to form CO-OPs. In his brief he notes that hospital and physician groups appear best situated for CO-OPs because through an integrated care model “they hold the key to creating a competitive product.”

HHS, which hopes to have one CO-OP per state, will help kick-start the process with $3.8 billion in loans to start-up and capitalize the new health plans.

WEBCAST: Cultivating Physician-Hospital Alignment in the ACO Era
When: July 20, 2011
Register today for this live event and webcast

According to the proposed rules, two types of interest-bearing loans will be available. The start-up loan will fund initial administrative costs; the solvency loan will fund the ongoing insurance reserves necessary for a CO-OP to offer health insurance coverage. Startup loans must be repaid within five years and solvency loans must be repaid in 15 years. Loans will be awarded by July 1, 2013,

White says CO-OPs could change the health insurance paradigm. “They’ll be competing against established health plans but they’ll 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.”

He says the biggest hurdle for CO-OPS will be risk selection. He adds that despite the billions of dollars the government is investing in CO-OPS health plans will still have an advantage within the exchange because they already have networks in place and understand the market.

Public comment on the proposed rules will be accepted over the next 60 days.