CO-OP health plans: patients’ interests first

By | August 1, 2015
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Editor’s note:  This article was originally written in 2012, but was updated in November 2014 to reflect the addition of many more CO-OPs and to discuss how they have performed during their first year, again in January 2015 to address the solvency problems with CoOportunity in Iowa and Nebraska, and again in July 2015 to address the Louisiana CO-OP’s departure from the market, as well as various other data.

One provision of the  Affordable Care Act (ACA) legislation that has received more attention of late is the  Consumer Operated and Oriented Plan (CO-OP). The Affordable Care Act provides $6 billion in loans and grants to develop these new non-profit organizations, and the Centers for Medicare and Medicaid (CMS) has awarded more than $2 billion to 23 CO-OPs across the country (there were 24 CO-OPs, but Vermont Health CO-OP never became operational.  CMS retracted their loan in September 2013 – before the exchanges opened for the first open enrollment – because there were doubts that the program could be viable with Vermont’s impending switch to single-payer healthcare in 2017).

CO-OPs are run by their customers and are meant to offer consumer-friendly, affordable health insurance options to individuals and small businesses. They can be sold both inside and outside the health insurance exchanges, depending on the state.  And a few of the CO-OPs are expanding into neighboring states for 2015, so CO-OP plans will be available in 26 states.

Supporters believed CO-OPs would curry favor with consumers seeking cost savings as well as health reform opponents who want less government – though the CO-OPS do have to meet ACA standards for health plans.  And so far, so good.  CO-OPs have enrolled 450,000 people in their first year, and that grew to over one million during the second open enrollment period.

What are CO-OPs and how are they different?

CO-OP plans are the alternative that Senator Kent Conrad (D-N.D.) came up with when the original  public plan option was discarded during the health care reform debate. Lawmakers put the CO-OP provision in the Affordable Care Act in an attempt to appease Democrats who had argued for a government-run, Medicare-like health insurance program for all age groups.

At the time, progressives who favored the public option complained that CO-OPs were a weak alternative because they lack the size and market clout that Medicare For All would have enjoyed when negotiating prices with providers.

But CO-OP supporters point out that precisely because they are neither government agencies nor commercial insurers, these private, nonprofit, state-licensed entities, will be free to put patients first, without worrying about investors – or Congressional politics.

The idea behind a CO-OP is that customers’ health insurance needs and concerns become a top priority because the CO-OP’s customers/members elect their own board of directors. What’s more, a majority of these directors must themselves be the CO-OP’s customers.

Profits made by the organization must be used to lower premiums, improve benefits, or sustain programs intended to enhance the quality of health care delivered to the CO-OP’s members.

And in both 2014 and 2015, average premiums were lower in states that have CO-OPs than in states without CO-OPs.

Focus on cost savings and profits

How do CO-OPs increase cost efficiencies?

  • First, the ACA requires that CO-OPs use private purchasing councils through which plans may enter into collective purchasing arrangements. These arrangements would allow CO-OPs to procure lower-cost items and services, such as health information technology, claims administration, and actuarial services.
  • But these private purchasing councils are not permitted to engage in contract negotiations or rate setting with health care facilities or providers.
  • Nevertheless, according to the Kaiser Foundation, new CO-OPs may emphasize  Patient Centered Medical Home models to keep costs down. (Primary care physicians who set up medical homes are expected to use health information technology, best practices and care managers to coordinate care among a patient’s various healthcare providers.  The goal is to keep patients out of the hospital. If they succeed, they receive bonuses.) Kaiser says CO-OPS may also have a heavier focus on primary care.
  • A challenge for CO-OPs is persuading doctors and hospitals to join their networks. Unless they can pay them more than large, established insurers, providers may be reluctant to join.  But some CO-OPs may attract providers at an affordable cost by employing them rather than paying them fee-for-service. These days, more and more doctors would prefer to work for an organization that takes care of all administrative details.
  • CO-OPs also could hook up with Accountable Care Organizations. The  Commonwealth Fund points out that the most successful existing examples of regional health cooperatives are those with strong links to high-performing integrated care systems: HealthPartners in Minneapolis–Saint Paul and Group Health Cooperative in Seattle. In addition to insurance, they directly provide  health services through nonprofit integrated delivery systems. The cooperatives own or contract with hospitals and clinics and contract with dedicated multispecialty physician groups.
  • Commonwealth also notes that contracting with community health center networks would be another way for CO-OPS to create a provider network. The ACA provides funding to expand community health centers by 50 percent. Available in every state, these centers are linked through national organizations, such as the National Association of Community Health Centers. They have the potential to become multistate networks, and every qualified health plan sold through the state exchanges will be required to include essential community providers in their networks. The Commonwealth Fund points out that one example of a high-performing, community-based system of care that contracts both with individual and group practices and community health centers is Community Care of North Carolina.

Are CO-OPs popular?

  • Because of these requirements enumerated above, consumers in many states view CO-OPs favorably because of their consumer-friendly orientation. Nearly half a million people have enrolled in CO-OPs across the country in 2014.  This is lower than the initial projection of 575,000, but still an impressive number given that every CO-OP is a new start-up.
  • CO-OPs have had varying degrees of success across the country in 2014.  In Maine, 44,000 people enrolled in coverage through the exchange and 83 percent of them selected Community Health Options, making the CO-OP’s first year an amazing success.  CHO expanded into New Hampshire for 2015, fueled by their initial success in 2014 and by a new loan from CMS. During the second open enrollment period, CHO once again dominated the Maine market, securing about 80 percent of the exchange market share.  They also enrolled about 5,000 people in New Hampshire.
  • Near the end of the 2014 open enrollment period, Kentucky Health Cooperative had garnered 75 percent of the exchange enrollments in Kentucky.  As of November, Kentucky Health Cooperative was covering about 57,000 people in the state.  The CO-OP had planned to expand into West Virginia for 2015, but backed out just a week before open enrollment over worries that their infrastructure wasn’t ready for the new influx of members.  They remain committed to the expansion though, and say that it will happen in 2016.
  • Health Republic Insurance of New York got 19 percent of the people who enrolled through NY State of Health (the state-run exchange) during the 2014 open enrollment period.  Their membership had grown to 112,000 by April 2014, far surpassing their initial goal of 30,000 members.
  • Maine, Kentucky, and New York are among nine states where CO-OPs met or surpassed their membership goals during the first open enrollment (the others include CO-OPs in Colorado, Iowa, Nebraska, Montana, New Mexico, and Nevada).
  • In Colorado, Colorado HealthOP got roughly 13 percent of the exchange market share in 2014 (the second highest of any carrier in the exchange), but they lowered their prices considerably for 2015, and garnered nearly 40 percent of the exchange’s enrollees during the second open enrollment period.  For 2015, they have the lowest prices in eight of Colorado’s nine rating areas for 2015.  Pricing and market share will likely change again for 2016, as the CO-OP has proposed a 21 percent rate hike for the coming year.
  • But not all CO-OPs gained significant market share in 2014.  In Maryland, Evergreen Health got just 450 members during the first open enrollment (they are expecting to gain more members in 2015 with more competitive pricing, and they did get 5,000 small group members in 2014).  And in Illinois, Land of Lincoln Mutual Health Insurance Company lost millions of dollars in early operations.
  • CMS recognizes that, in a competitive marketplace,  CO-Ops will face challenges. The agency acknowledges that more than one-third of the CO-OPs may fail in the next 15 years. It has set aside $600 million in loans for start-up costs and $3.2 billion to help the plans stay solvent, and estimates a 40 percent default rate for the planning loans and a 35 percent default rate for the solvency loans.
  • Unfortunately, CoOportunity in Iowa and Nebraska suffered significant financial losses in 2014 and was taken over by Iowa state regulators in December 2014.  The CO-OP was subsequently liquidated, and members had to switch to another carrier by March 1, 2015.  Martin Hickey, Chairman of the National Alliance of State Health CO-OPs, has said that CoOportunity was unique in its precarious financial situation, driven by high enrollment numbers coupled with the fact that many healthy people in Iowa and Nebraska were able to keep their grandmothered plans instead of shifting to the exchange.  Also, federal funding – up to $60 million – that had been earmarked for CoOportunity was ultimately not made available for them, furthering their financial troubles.
  • Many Republicans advocate for the repeal of the Affordable Care Act and see the individual mandate as an intrusive overreach. The CO-OP plans – drawn from the GOP’s consumer-oriented playbook – don’t seem to be on the radar of many of the ACA’s Republican opponents. Thus CO-Ops are likely to survive.

23 21 CO-OPs offering plans in 25 22 states

CMS has distributed more than $2 billion in start-up loans to 23 CO-OPs that are operating in 25 states in 2015 (as of early 2015, this dropped to 22 CO-OPs in 23 states, and with the announcement that Louisiana’s CO-OP is closing, we’re left with 21 CO-OPs operating in 22 states):

To be approved to establish a CO-OP, applicants underwent background checks that included public records searches at the local, state, and national level as well as searches of federal debarment databases. Loan recipients are subject to strict monitoring, audits, and reporting requirements for the length of the loan repayment period plus 10 years.

In July 2015, HHS released a comprehensive audit report of enrollment and profitability across all of the CO-OPs.  Unfortunately, 13 of the 22 CO-OPs (CoOpportunity was not counted) did not meet their enrollment goals in 2014, and only one CO-OP (Maine Community Health Options) had a net positive income in 2014.  CMS has added increased oversight for four CO-OPs, and has issued low enrollment warnings to two CO-OPs, but the audit concluded that more needs to be done to assess the viability of CO-OPs.  It also concluded that the relatively low enrollment and cash flow problems experienced by many CO-OPs could put them in jeopardy of not being able to pay back their start-up loans.

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