As part of the affordable care act (ACA) an estimated $6 billion in federal grants and loans will be allocated to form health insurance cooperatives, but some question if they are a viable alternative to traditional healthcare plans. The idea to include health insurance co-ops in ACA legislation was initially proposed in Congress in June 2009 to offset congressional opposition to a government-run healthcare system.

The Consumer-Owned and Oriented Plan, as titled in the ACA provision, calls for the creation of not-for-profit health insurance cooperatives that are consumer -owned and consumer-run. Health insurance co-ops are health payment structures with the goal of providing health insurance at reduced costs, while continuing to compete with private insurers. Consumers forming a co-op would contract and negotiate directly with providers in order to get the best value for their consumer owners. According to officials, the co-ops would be self-governed by an elected board, but would operate within the health reform exhchange, another aspect of the ACA.

Members would determine premiums, benefits covered, deductibles and co-pays, and with a non-profit status, surpluses would be returned to members in the form of reduced premiums and enchanced benefits. Like all not-for-profit organizations, co-ops would be exempt from federal taxation.

According to the ACA provision, incentives will be given by the government until each co-op has enough premium revenues to continue operating on its own.

The co-op program must award all grants and loans by July 1, 2013. But even with federal funding, forming co-ops can present many difficulties. Health plans are heavily regulated, require large monetary reserves, and take a lot of sophisticated knowledge and technology.

“Starting a health plan is like starting a bank.,” says Jordan Battani, a principal at CSG global Healthcare Group in Falls River, Va. “You don’t do that on a small scale basis. Firms formed before July 2009 are not eligible. They must be private, non-profit, independent of affiliation, sponsorship or oversight f rom commercial insurance carriers, and must be licensed to provide healthcare coverage in the states that they operate. They also must be made up of members who are beneficiaries of their healthcare coverage and are to be governed by a majority of vote members without influence from commercial insurance carriers.

Because this has never been done on such an immense scale, it remains to be seen whether they will have the network adequacy or the market clout to be successful.

Battani notes that the co-ops that have worked so far have coordinated engagment with a provider network of hospitals and physicians. But even that might not be enough. “If any co-ops are formed as a result of funding, I think it will be interesting,” she says. “But I don’t think that there will be a huge tidal wave of them.”