When the state-based health insurance exchanges open on October 1, half of them will include consumer operated and oriented plans, or CO-OPs. These brand-new insurers, funded by the Affordable Care Act, will compete alongside Medicare and commercial plans.
Asked what the new plans will offer consumers, Martin E. Hickey, MD, CEO of the New Mexico Health Connections CO-OP, said, “We’re not them.” By “them,” he was referring to commercial health insurers.
The commercial plans have become powerful, for-profit concerns, viewed by some as more interested in shareholders than members, and they often have adversarial relations with hospitals and physicians.
In contrast, the new CO-OPs are non-profit and answer directly to the people they cover. Their members will actually control their governing boards. Some of them are sponsored by hospitals and physicians, as well as small businesses, and are championing innovative provider strategies and payment methodologies like chronic care management and patient-centered medical homes.
“We are changing the fundamental way we provide insurance,” Dr. Hickey said.
Pluses and minuses
The newness of the organizations, however, is also their Achilles’ heel. They have yet to gain name recognition, and will have to be ready for business just 18 months after formation. They have no historical claims or utilization data on which to base their rates, and they don’t have the deep ranks of insurance experts that commercial plans can rely on.
And yet these new plans have a lot going for them, too. All received hefty federal loans, ranging from $33 million to $174 million per plan, covering a big chunk of start-up costs as well as their reserves. They will also benefit from new federal insurance protections that will help all exchange plans survive “adverse selection,” which happens when an insurer has a high proportion of members who need costly medical care.
Also, CO-OPs have found many seasoned healthcare executives to lead them, including some former insurance commissioners, and the new plans will get a lot of exposure on the exchanges. When enrollment begins on October 1, they will be listed on equal footing with the big commercial insurers.
But as Congressional Republicans have denounced the heavy federal outlays for CO-OPs, federal budget standoffs led Congress to cut two-thirds of the $6 billion originally allocated for these plans. Congress also closed the door on any new CO-OPs, which shut out more than 40 applicants earlier this year.
The 24 plans that won the money will operate in an unusual mix of states. Big states like New York, Illinois and Ohio are included, but not California, Texas and Florida. There are blue states like Massachusetts, Michigan and New Jersey, but also red states like Kentucky, South Carolina and Utah. Some plans will start in parts of states and expand later.
Under pressure to keep rates low
As stipulated by the ACA, at least two-thirds of CO-OPs’ membership must come through the exchanges. When the exchanges open this fall and millions of previously uninsured people look for coverage, the new plans will have a singular opportunity to build a customer base overnight. But each plan will need to capture very large numbers – some say 250,000 members – to create sufficient economies of scale.
Low premiums are expected to be the key factor in winning exchange enrollees, because they will be mostly low-income people who don’t have much to spend. John Morrison, president of the National Alliance of State Health CO-OPs, which represents the new plans, said they will be very competitive on price. While final premiums on the exchanges have not been set yet, he said a few exchanges have released participating plans’ proposed premiums, and CO-OPs tend to be at the lower end.
Morrison said the new plans will keep rates low partly by running “austere business operations.” Initially, many of them will outsource some insurance administration, transaction processing and information technology functions.
Rob Levy, a vice president for Xerox, which is supporting CO-OPs in Connecticut and Wisconsin, says a third-party administrator is important to quickly getting the CO-OPs up and running.
“It would be difficult for these startups to build the infrastructure necessary to operate from scratch in less than a year, in some cases,” Levy told HealthBiz Decoded via email.
New payment methodologies will also help keep costs low. Hickey pointed out that the New Mexico plan will rely heavily on care coordinators to manage members with chronic conditions, who typically make up 40 percent of healthcare expenditures. “If you can stabilize that population, you can vastly reduce the costs,” he said.
Some new insurers are making some unusual offers to lure more customers. The Oregon Health CO-OP will cover patients’ phone calls and e-mails to physicians, and Arches Health Plan in Utah will waive out-of-pocket payments if they are victims of accidents. Linn Baker, the CEO of Arches, said the young people in his target audience are often more concerned about accidents than diseases.
Baker is excited about launching his new plan. He thinks CO-OPs will inject more competition and make healthcare more patient-centered. “If we do well, our members do well,” he said. “We’re not trying to please shareholders.”