Health Insurance CO-OPs


As part of the Affordable Care Act, Congress created an alternative to traditional, for-profit private insurance plans. Consumer Operated and Oriented Plans, known as CO-Ops, are consumer-run, private health plans that use their profits to lower premiums, increase benefits, expand enrollment, and improve quality of care.

Unless repealed, CO-OPs will be available to individuals and small businesses through the state-based health insurance exchanges starting in 2014.

Economist Sara R. Collins, Ph.D., vice president of the affordable health insurance program at the Commonwealth Fund, explained what CO-OPs will need to do to succeed in the new insurance marketplace.

Dr. Collins: The intent is to encourage the development of plans that have a strong consumer focus, are accountable to their members, and will use their members' premiums and revenues to improve health care rather than increase profits. Toward this end, the law specifies that the governance of the CO-OPs must be subject to a majority vote of its members, and the organizations are required to operate with timeliness, responsiveness, and accountability to members.

Profits must be used to lower premiums, improve benefits, or finance programs aimed at improving the quality of care for members. The law specifies that the HHS department, in determining loan awards, would give preference to those plans that utilize integrated care models.

Dr. Collins: The most successful existing examples of regional health cooperatives are those with strong links to high-performing integrated care systems, such as HealthPartners in Minneapolis–St. Paul and Group Health Cooperative in Seattle.

The keys to these organizations' success include a consumer-focused mission, accountability resulting from a consumer-elected board, close links with care systems and networks of providers, a regional focus integrating a broad range of services, commitment to evidence-based care and informed patient engagement, strategic use of electronic health records to support care redesign, patient-centered medical home model of primary care, efforts at care coordination, and greater accountability for the total care of patients.

Similar successful examples of nonprofit, integrated delivery systems with affiliated health plans, though not consumer governed, are Geisinger Health Systems in Pennsylvania, Intermountain Healthcare in Utah, and Kaiser Permanente.

Dr. Collins: The keys to success will be the ability to purchase care on favorable terms and the ability to offer high-quality networks of providers. One of the most significant challenges facing newly formed cooperatives will be their ability to gain market share in highly concentrated insurance markets. There are only three states in the country where the two largest health plans dominate less than 50% of the market.

In addition, extensive consolidation in hospital and other provider markets across the country has substantially reduced price competition in those markets. Consequently, large insurance carriers and large provider systems individually negotiate prices, with those prices ultimately reflecting discounts off list prices that physicians and hospitals charge patients without insurance. Prices vary widely, and the lowest rates are not available to all health plans.

Newly formed cooperatives will thus be at a considerable disadvantage in obtaining favorable provider rates in most local markets, which will in turn make them less competitive in insurance exchanges and in the individual and small group markets. The extent to which the new state insurance exchanges are able to encourage the participation of high-value health plans could increase the likelihood that cooperatives can gain a toehold in competitive markets.

Dr. Collins: The emphasis of the program on integrated delivery systems will benefit several types of providers. While the law precludes existing plans such as the Geisinger Health Plan from serving on the boards of cooperatives receiving grants, it does not preclude the new cooperatives from contracting with Geisinger's integrated system of providers. In the absence of such an integrated delivery system, cooperatives might contract with multispecialty group practices, clinics, and hospitals, with a goal of integrating care systems.

One such example is the Marshfield Clinic, a nonprofit, physician-governed, multispecialty group practice serving residents of rural Wisconsin through a regional ambulatory care system, an affiliated health plan, and related foundations supporting health research and education. Newly formed cooperatives might also contract with community health centers as a dedicated set of primary care providers. Available in every state, community health centers are linked through a common mission, and formally through national organizations such as the National Association of Community Health Centers. Thus, they have the potential to become multistate networks.

A significant challenge facing newly formed cooperatives will be their ability to gain market share.


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