Arizona, Connecticut Are Latest States to Score CO-OP Loans

Freelancers Health is sponsored by Freelancers Union, an association of independent workers whose model is driven by a focus on providing high quality, consumer-oriented coverage and financial sustainability that emphasizes the use of patient-centered medical homes.    

But hospital and physician groups appear best situated to create CO-OPs because they hold the key to creating a competitive product, Milliman states in its healthcare reform briefing paper, Health Insurance Co-Ops: Challenges and Opportunities. 

One of the criteria for governmental approval is use of an integrated care model, which is easier for provider groups to achieve. For the other entities listed above, the more stakeholders that are involved the more likely the various missions and priorities of these stakeholders would diverge and make it difficult to create a single focus for a CO-OP. 

While these other entities already have a governance structure in place, they would still have to create or rent a network of providers, adding another layer of complexity and time to the CO-OP development.

“Historically, there has been no easy path to establishing a nonprofit health insurer. Establishing a CO-OP includes the added complexity of requiring some member involvement with the government, which is providing the largest source of capital,” Milliman’s paper stated.

 ”CO-OPs will promote competition and give consumers more health insurance choices,” stated Marilyn Tavenner, CMS Acting Administrator. “These new private nonprofit insurers will be run by consumers and are designed to offer individuals and small businesses more affordable, consumer-friendly and high-quality health insurance options.”

CO-OPs operate differently from traditional insurance companies. More than half of the Board of Directors must be the customers or members of the CO-OP, and all directors must be elected by a majority vote of the members, improving accountability and transparency. Profits gained by a CO-OP must go directly back to their enrollees, to be used to lower premiums, expand benefits, or improve quality.

Although “most of the insurance industry probably only briefly read this section and assumed there was a low probability of any CO-OPs actually emerging. As the implementation of exchanges gets closer and becomes a reality, CO-OPs may have a role in changing the health insurance paradigm,” Milliman’s paper on the subject said. 

Indeed, health insurance lobbyists and others in Washington, perhaps feeling the heat from potential competitors, have started privately criticizing these CO-OPs, their lack of expertise in the field of healthcare and their funding. The CO-OPs will compete directly with insurers selling products inside exchanges, as a report by Milliman states.

“I am not suggesting any particular issue there, but I do think the Federal government is pissing away quite a bit of money here,” said said one health insurance lobbyist.  ”I know it is a ‘loan,’ but I also know the Obama Administration expects that some of these will succeed and some will fail. I am not saying I smell a rat, but the Federal government is tossing $638 million in loans to some interesting groups and organizations in a quixotic quest to create a new and better health plan.”

Most recently, Republicans on the House Energy and Commerce Committee are asking for evidence that organizers of the new “CO-OP” program cooperative health insurers can pay back CO-OP startup and solvency loans.

The Republican committee leaders sent a letter asking for documents relating to the Consumer Operated and Oriented Plan (CO-OP) to  Tavenner, back in April.

A program table indicates that “the loan subsidy percentage, or expected losses percentage, is about 43% of the face amount of $7.25 billion for all the loans,” the Republican committee leaders say.

The expected loss ratio is higher than the 35% expected loss ratio that HHS  included in a proposed rule published in July 2011, the lawmakers say.

Allison Bell contributed to this report.