CO-OPs aim to transform health insurance business

Twenty-four start-up companies hope to compete alongside big insurers when the health insurance exchanges open on Oct. 1. But these consumer oriented and operated plans (CO-OPs) created under the reform law also aim for even bigger goals, namely changing the health insurance business.

"What we're doing is a big part of the ACA story," John Morrison, president of the National Alliance of State Health CO-OPs, told Kaiser Health News. "We bring a completely different paradigm to healthcare finance. We're not interested in making as much money as we can. We're not interested in making profits. What we are interested in is making consumer patients healthy and saving money."

Of course, CO-OPs face huge hurdles in their attempt to reach these goals. For example, they aren't allowed to use federal start-up loans for advertising, making educating and enrolling consumers. Instead, many CO-OPs are reaching out to the public through community groups, clinics and hospitals.

"I feel pretty confident that we're going to have tens of thousands of Iowans and Nebraskans going on the marketplace, and they're going to see us," said David Lyons, CEO of CoOpportunity Health, which will sell plans in both of those states. "And they're going to like what they see."

One key to CO-OPs' success is securing low hospital prices. But since they can't guarantee high patient volume as a start-up insurance company, hospitals aren't willing to discount their rates. Plus, many CO-OPs rent competitors' networks, further hampering their ability to negotiate with providers.

Despite these issues, CO-OPs have established good provider relations, largely by promising to cover the sickest, most unprofitable patients while paying bills promptly, KHN noted.

"Pleasantly, almost across the board nationally, co-ops have been received with open arms by hospitals and doctors and providers of all kinds who welcome our influence in the market and who have given us great deals," Morrison said.

Since CO-OPs aren't beholden to shareholders, they can freely build their companies from the ground up while engaging members and realigning provider reimbursements. For example, monthly premiums in Oregon for a single nonsmoking 40-year-old will range from $234 to $251 for the state's two CO-OP insurers, compared to $169 to $422 a month for comparable plans from other insurers, FierceHealthPayer previously reported. 

"If co-ops price their product right [and] get significant market share through the exchange, we will through our practices force the rest of the marketplace to change," Morrison told KHN.

To learn more:
- read the Kaiser Health News article

Related Articles:
Vanguard, Tufts launch CO-OP health plan
Report: Exchanges will breed insurer competition
CO-OPs carve out competitive spot in exchanges
Lessons big insurers can learn from CO-OPs