Reprinted from AIS's HEALTH REFORM WEEK, the nation’s leading publication on the business implications of the massive changes for the health industry mandated by reform.
By Neal Learner, Editor
July 1, 2013 Volume 4 Issue 13
The Consumer Operated and Oriented Plans (CO-OPs) set to launch on the insurance exchanges this fall appear to be offering competitive rates, according to the few states that have released premium data. Some advocates tout CO-OPs as the “real nonprofit” option that will attract customers wary of profit-driven commercial carriers. But others predict these new players could face a tough time competing with established insurers that have broad name recognition and the heft to create wide provider networks while extracting deep provider discounts. Still, one expert says a CO-OP’s success or failure will depend on basic business fundamentals: utilization and price.
But so far, CO-OP executives and observers contacted by HRW say their products are well priced and their entities have a unique selling point on the exchanges.
“We give members a voice in the CO-OP’s operations,” says Fedelina Madrid, vice president of consumer and community engagement at Colorado HealthOP. “Members will sit on the board and have a say in what is covered under benefit plans.”
Premiums announced in several states, including Colorado, show that the CO-OPs have submitted competitive rates, although not necessarily the lowest. Colorado HealthOP rates are “right in line with those of other insurers, which, as a new market entrant, we are excited to see,” says Julia Hutchins, CEO of the CO-OP.
Created under the Affordable Care Act (ACA), the CO-OP program is designed to bring new competition to the insurance market. The federal government has provided $1.9 billion in low-interest loans to establish 24 CO-OPs in 23 states. Most of the CO-OPs have received clearance by state regulators to offer plans on the exchanges starting Oct. 1.
Ore. CO-OP Rates Are in ‘Cone of Credibility’
Consumers in Oregon will have the choice of two CO-OPs. Premium rates for those plans are in the middle of the pack.
For example, a 40-year-old nonsmoker would pay a $251 monthly premium for the least expensive “bronze” level plan offered by Freelancers CO-OP of Oregon, and $234 for a plan offered by Oregon’s Health CO-OP, according to the Oregon Insurance Division. Rates of other carriers in this category range from $195 to $422 per month.
“We are positioned quite well, and well within what is considered to be a cone of credibility,” Ralph Prows, M.D., CEO of Oregon’s Health CO-OP, tells HRW. “Outside of that cone of credibility, you have to ask questions about what’s going on. There are a couple of plans that came in very, very low, way out of the pack in Oregon. And they are undergoing rate reviews like all of us.”
The rates reflect actual costs in the market, he says. “The challenge we have, and all CO-OPs have as startups, is that we have no claims history. We rely very heavily on the experience of our actuaries and assumptions based on studies of these markets.”
Oregon’s Health CO-OP expects to enroll 34,000 Oregonians next year. Prows says the entity brings several unique features to the market. One of these is the elimination of coinsurance in favor of simple copayments. “We heard that people really want more understanding of the cost of care,” he says.
Providers also don’t like dealing with coinsurance, Prows adds, because the process requires billing and collecting varying amounts from insurers and patients. “It costs them $25 per claim just to exercise that cycle, and that doesn’t include their write-offs for people who don’t pay. It’s very expensive, very long and very confusing to everybody.”
As such, Oregon’s Health CO-OP’s copay structure includes $15 for a phone or email consultation, $35 for a primary care doctor visit and $75 for a specialist. The CO-OP also charges lower copays for outpatient surgery at a free-standing ambulatory surgical center than for a hospital outpatient surgery center. Another unique feature of Oregon’s Health CO-OP is that it credentials naturopathic physicians as primary care physicians, Prows says. Naturopathic doctors are distinguished by their focus on counseling and coaching patients in lifestyle changes and healthier behaviors.
Whether they’re naturopathic or traditional, physicians appear to be welcoming CO-OPs into the fray.
John Morrison, president of the National Alliance of State Health Cooperatives, says that despite earlier speculation that startup CO-OPs would have difficulties developing provider networks and getting best deals, they are getting a good reception from providers.
Generally speaking, Morrison tells HRW, providers have given CO-OPs the best rates available, despite initial concerns to the contrary. “What CO-OPs found when they went around and started meeting with providers, was that they were saying, ‘You bet, come on in, and let us know of anything we can do to help,’” he says.
The ACA gave CO-OPs a fair amount of latitude for innovation, Morrison says. “Pretty consistently across the CO-OP community there is a commitment to reforming the reimbursement system.”
Still, many CO-OPs in the first year or two will start with a more traditional fee-for-service arrangement, just to get up and running. “But they have plans to transition as soon as possible to value-based purchasing, which uses data analysis to correlate reimbursement with efficiency and health quality results,” Morrison says as an example. “Some CO-OPs have business plans that move in the direction of capitation, and some have business plans that move in the direction of wholly owned clinics.”
Are CO-OPs More Competitive?
Peter Kongstvedt, principal of the health plan consulting firm P.R. Kongstvedt Company, LLC, says the funding provisions in the ACA for CO-OPs are very similar to the HMO Act of 1973 when the feds wanted to get HMOs off the ground.
The political calculation is that because a CO-OP is owned and operated by consumers, “it’s going to be far more competitive because it won’t have this terrible need to produce mountains of money and profits,” Kongstvedt says. But large profits may be absent anyway, he says, due to the new medical loss ratio rule, which requires plans to spend 80% to 85% of their revenue on medical costs and quality improvement initiatives.
Kongstvedt also contends the success of any health plan is dictated primarily by two things: utilization and price.
“A CO-OP, much like an early group or staff model HMO, is going to succeed or fail based on the fundamentals,” he says. “Are they able to manage the business properly? Do they know how to manage the money? Do they know how to deal with utilization and quality?” He also notes that consumers likely will be attracted to name-brand insurers, as they “imply stability” and come with wide networks.
But Denise (Dede) de Percin, executive director of the advocacy group Colorado Consumer Health Initiative, says CO-OPs are not just another nonprofit health plan. For instance, she notes, Colorado’s two largest nonprofit insurers in the state have “very, very high” cash reserves, according to the state’s Department of Insurance. “To the extent that the CO-OP is operating more like a real nonprofit, it could be very competitive — price-wise and better consumer-directed-wise,” she tells HRW.
She also points out that the new exchange environment is a game changer for all insurers, including the large carriers that traditionally have focused on the business-to-business group market. By contrast, the CO-OPs’ business model is starting from a business-to-consumer (B-to-C) perspective.
“Marketing to 466,000 individuals that they estimate are eligible for tax credits in this state is a whole new ballgame for insurers,” de Percin says. “But that’s where the CO-OP is starting. They may have some advantage. Their whole frame of reference is B-to-C.”
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