Realizing Health Reform’s Potential Innovative Strategies to Help Affordable Consumer Operated and Oriented Plans (CO-OPs) Compete in New Insurance Marketplaces

The Affordable Care Act paves the way for groups to develop innovative, affordable health insurance and care options known as Consumer Operated and Oriented Plans (CO-OPs). These CO-OPs will be nonprofit, consumer-controlled entities that are designed to serve individuals and small businesses, especially in noncompetitive markets. The CO-OP provision was included in the Affordable Care Act to address the lack of affordable health plan alternatives in many state and regional markets and to counter a trend toward market concentration. Despite their promise, CO-OPs face a number of business challenges that go beyond typical start-up hurdles. This issue brief lays out a number of innovative strategies CO-OP organizers are developing to increase the odds of long-term sustainability and economic success. These strategies—aimed at building market share, creating integrated provider networks, and achieving cost savings through payment reform—could establish CO-OPs as a viable new entrant in the health care field. OVERVIEW The Affordable Care Act includes an important provision that facilitates the development of nonprofit, member-run health insurance companies known as Consumer Operated and Oriented Plans (CO-OPs) in every state. One of the main reasons the CO-OP provision was included in the health reform law was to address the lack of affordable health plan alternatives and competition in many state and regional markets, as well as a trend, documented in studies conducted by the American Medical Association and the Department of Justice, toward further market concentration. Groups interested in forming a CO-OP will have to overcome start-up challenges that include earning enough money to sustain long-term operations, recruiting and retaining experienced management and staff, and obtaining funding for growth and expansion. But in addition, the CO-OP health plans must also offer coverage that is affordable and meets the unique needs of their customers in the individual and small-group markets. To do this, CO-OPs face the added challenge of working with a range of providers to develop innovative models of payment and care delivery systems. 2 The Commonwealth Fund Despite trepidation about entering a market dominated by well-financed commercial and nonprofit insurers, CO-OP organizers have enthusiastic potential leaders with a clear-eyed view of the risks and challenges. These CO-OP founders understand that a business-as-usual model that duplicates existing health plans will not meet the congressional vision and mandate for CO-OPs nor offer a new alternative for consumers and employers. In this issue brief, we summarize potential strategies and support structures CO-OP organizers can utilize to gain sufficient market share, improve the delivery of health care, achieve economic success, and overcome the primary challenges they face. The strategies discussed here will help establish CO-OPs as a viable new entrant in the field and a contributor toward improved patient health outcomes at affordable costs. BACKGROUND Alternative health insurance models like the CO-OPs have a long history in the United States. Health cooperatives differ from traditional health insurers in that they are nonprofit entities governed by their members and are focused on coordinating care and coverage for their beneficiaries. The most successful examples include HealthPartners in Minnesota, with 1.5 million members, and Group Health Cooperative in Washington State, with 700,000 members. Both of these large cooperatives are fully integrated health systems with their own physicians and health care facilities. Independent studies have placed these cooperatives in the ranks of the highest-performing health plans in the country in terms of providing value and quality care to their customers. The CO-OP model is not confined to the U.S. There are successful cooperatives in Spain, Brazil, and Japan, among other nations, which together cover 200 million individuals. CO-OPs under the Affordable Care Act—not to be confused with other legal entities known as cooperatives that operate in many economic sectors and are typically formed under state law—are intended to increase consumer choice and control and stimulate competition in health insurance markets. CO-OPs must be nonprofit, consumer-controlled entities focused on health insurance coverage and care, among other requirements. Following are the main features of the CO-OP program: A CO-OP’s primary purpose is to promote the health and well-being of its customers as affordably as possible over the long term. CO-OPs will be exempt from federal taxes. Each CO-OP must operate with a strong consumer focus, and profits must be used to further its mission through lower premiums, improved benefits, or improved quality of care. The federal government will distribute $3.4 billion in funding for the program in the form of loans to cover start-up costs and to meet solvency requirements in states where some CO-OPs seek to be licensed as insurers. The funding must be disbursed by July 1, 2013, and the Department of Health and Human Services (HHS) must disburse it in a way that ensures the establishment or operation of at least one CO-OP in each state. 2009, are not eligible for funding from the CO-OP program. A 15-member HHS advisory board was appointed in July 2010 with the objective of making recommendations that would ensure the effectiveness and success of the health CO-OP program. The Board, comprising health system experts including providers, regulators, administrators, actuaries, and businesses, gathered a wide range of public and expert testimony and studied the history of health cooperatives. It concluded that a variety of models and program flexibility are needed to match the diversity of market conditions and challenges across the 50 states. HHS has proceeded expeditiously to define the CO-OP program, fostering a strong response by potential applicants. In July 2011, HHS proposed regulations and issued a funding opportunity Innovative Strategies to Help Affordable CO-OPs Compete in New Insurance Marketplaces 3 announcement, which closely follows the advisory board’s recommendations. The first application deadline passed in October 2011 and the initial loans to eight different organizations, to cover approved startup costs, were awarded in February and March of this year (see exhibit on next page). These include: Midwest Members Health (Iowa and Nebraska) Maine Community Health Options Montana Health Cooperative Freelancers Union (New Jersey, New York, and Oregon) New Mexico Health Connections Oregon’s Health CO-OP, and Consumers’ Choice Health Insurance Company (South Carolina), and Common Ground Healthcare Cooperative (Milwaukee, Wis.). There will be subsequent application periods quarterly through December 31, 2012. The number of applications is robust and covers a majority of states with a diversity of sponsoring groups and business models. HHS is now reviewing applications from the latest quarterly filings. Based on our analysis of interviews with 54 experts, many of whom were interested in forming CO-OPs, as well as information gleaned from historical assessments of past successful cooperative group plans, we estimate there are 15 to 28 CO-OPs in formation that intended to apply for HHS funding in 2011. More applicants will likely follow in future application periods. The CO-OPs in formation include those being organized by cooperative and small-business organizations, nonprofit groups providing services to freelance workers, and community organizations historically involved with health care reform. Other organizations have sponsored CO-OPs, including health care provider groups and their affiliated health care plans and industry-affiliated groups that provide insurance products to their smalland large-group members. These organizations are already involved and invested in health care and health insurance and are interested in CO-OPs for both defensive and offensive reasons. On one hand, they will have to respond to the presence of CO-OPs in their market for competitive reasons; on the other, they see CO-OPs as a new business opportunity. The strongest CO-OP applicants are those that have secured participation from groups with health care and business experience and access to resources such as provider organizations and integrated health systems. Many of the CO-OP applicants are focused on meeting the challenges of rural areas, communities, providers, and patients. Examples are the CO-OPs approved for loans in Iowa, Maine, Montana, Nebraska, and New Mexico, which have extensive rural populations and agricultural communities. PRIMARY COOP OPPORTUNITIES The primary objectives for CO-OPs are to improve the delivery of health care and attain enough economic success to position the member-controlled plans as a viable and affordable new entrant into the health care field. CO-OPs have opportunities to: utilize private sector funding and revenues generated from member services in addition to federal loan funding; promote the CO-OP’s nonprofit, membergoverned structure as an attractive alternative to traditional insurers; cultivate member loyalty to guard against inappropriate care utilization and adverse selection and give the CO-OP resilience in the marketplace in the face of short-term predation by competitors; develop a consumer governance and participation structure, so that CO-OP members continuously and systematically shape the business decisions that lead to a more patient-focused, quality organization; 4 The Commonwealth Fund work with other CO-OPs to develop a common means to raise expansion and working capital from members, as well as share services to get membership, insurance operations infrastructure, and reinsurance to scale to lower costs; better the average risk curve of a typical insurance company by providing insurance products that motivate consumers to change their behavior, increase use of preventive services, and include a value-based health care and prescription drug design; partner with doctors and other care providers that share in the CO-OP’s vision and values, are committed to changing the way care is delivered, and will share accountability for members’ health and the overall financial stability of the CO-OP; increase member satisfaction and contain costs by enlarging and supplementing provider networks through the use of nurse practitioners and other nonphysician health care providers as well as complementary and alternative providers; and tives for innovations that reduce members’ health care costs and give the CO-OP the economic margins required to offer competitive premiums and enjoy long-term success. The primary known challenges to CO-OP success are: