The first loans for creation of Consumer Operated and Oriented Plans (CO-OPs) are expected in early 2012. Proposed as an alternative to the public option in the health reform debate, CO-OPs are to be nonprofit, member-governed health plans that create innovative care delivery models to serve the individual and small group markets in various states. The Patient Protection and Affordable Care Act has features that are attracting potential developers of CO-OPs, but it also contains provisions that will make success more difficult. This status report, funded by the Robert Wood Johnson Foundation, covers the provisions of the legislation that will affect who seeks CO-OP funding and whether they are likely to survive and grow. CO-OPs may become important insurance options in some markets, but it is difficult to foresee their having a transformative effect that was expected of the public option.
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The Patient Protection and Affordable Care Act of 2010 (ACA) included a loan program to finance the creation of Consumer Operated and Oriented Plans (CO-OPs). $3.8 billion is available. CO-OPs are to be nonprofit, member-governed plans that will create innovative care delivery and payment models to compete in states' individual and small group health insurance markets.
The Department of Health and Human Services (HHS) has issued proposed rules and a funding opportunity announcement for the CO-OP program. The first round of applicants will be accepted by October 17, 2011, and the first loans will be made in January 2012. Loans to create and develop CO-OPs must be repaid within five years. Longer term loans (to be repaid in 15 years) will help CO-OPs meet state solvency requirements.
By insuring almost 13 million more people and creating new health insurance exchanges, the ACA creates opportunities for these new health plans. Other provisions will shape the applicant pool. Sponsorship by existing insurance issuers is not permitted, and according to the legislation, "substantially all" of CO-OPs' activities must be in the individual and small group markets. Some potential sponsors will be deterred by application costs and the member-governance requirement.
HHS's Center for Consumer Information and Insurance Oversight reports substantial interest in creating CO-OPs, and a trade association - the National Alliance of State Health CO-OPs (NASHCO) - has been formed to facilitate applications. Potential sponsors from more than 25 states have identified themselves; they include membership organizations, other types of co-ops (e.g., farm), and new organizations led by health reform advocates.
CO-OPs prospects for survival and growth will depend upon market factors, responses of established competitors, and the strength of management teams. Success will also be affected by plan's ability to deal with challenges that are shaped by provisions in the legislation that created the program. These include:
- Building the needed provider network and administrative structures. Given the tight time frame for getting established, many plans will initially contract for administrative services and provider networks from existing third-party administrators.
- Building enrollment. This is important for economies of scale and negotiations with providers. Sponsors that already have access to potential enrollee populations will have an advantage. Being ready to accept enrollment in the October 2013 open enrollment period before the exchanges open will be important. Many, perhaps most, will need more time.
- Overcoming the prohibition on marketing. Marketing is a significant expense for health plans and will be particularly important for new (and unusual) plans. How the legislation's restriction on using loan funds for marketing is implemented in practice will be important.
- The danger of adverse selection. Setting prices may be difficult for new plans that recruit people who were uninsured before the ACA, because many new enrollees have a backlog of unmet medical needs. Established competitors may be skilled at the marketing methods that can attract the healthiest patients. The reinsurance and risk adjustments provisions of the ACA will be important here.
- How member governance works. Plans will need board expertise on finance, strategic planning, product development, contracting, actuarial functions, and medical management. Although the rules require that the board be elected by members, boards can include experts who are not plan members.
The legislative sponsors envisioned CO-OPs transforming the health insurance market. Whether they are able to do so will depend upon their ability to move beyond the individual and small group markets, work collaboratively with each other, and evolve beyond reliance on existing administrative organizations and provider networks.
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