OPINION: Could nonprofit health insurance plans be the real reformers?

Introduction

When members of Congress who led the effort to overhaul the U.S. health care system saw the public option slipping away, some of them suggested that a viable alternative would be the fostering of nonprofit health insurance CO-OPs (Consumer Oriented and Operated Plans) throughout the country.

I was among the many who belittled the idea. Having spent two decades in the health insurance industry, I knew how difficult it is for even the biggest insurers to establish a presence in markets where one or two other insurance firms dominate. And there are hardly any markets left where that is not the case.

The barriers to entry in any given market are so high that the only way insurers have been able to establish much of a foothold where the don’t already have a presence is to acquire one or more existing companies. Aetna became a big player in Philadelphia, for example, only after it bought U.S. Healthcare several years ago.

If you don’t have a sizable membership base, it is difficult to negotiate rates with doctors and hospitals that are as favorable as those that bigger insurers can get. If you have to pay providers more than your competitors, you will have to charge your customers higher premiums. It is almost impossible to grow your membership if you have to price your premiums higher than your competitors. It’s a chicken-and-egg thing and why we have seen such rapid consolidation in the insurance industry. And it’s why I was skeptical that start-up non-profit CO-OPs would have a snowball’s chance.

I’m happy to report that I might have been wrong. In fact, CO-OPs could be one of the sleepers in the health care reform law that truly transforms how care is financed and delivered in this country. And they could even hasten the day when the big investor-owned corporations cede the marketplace to nonprofits and move on to other ways of earning a profit.

That’s because of the financial assistance that eligible nonprofit groups are getting from the federal government — thanks to the Affordable Care Act — and also because of the approaches the groups being selected for solvency and start-up loans are taking to get their operations up and running.

To date, the Department of Health and Human Services has awarded more than $982 million in low-interest loans to 12-nonprofit groups from California to Maine to help them overcome those barriers to entry. The reform law provides a total of $3.4 billion in loans for local groups that meet high eligibility criteria, so several more prospective CO-OPs will be selected in the months ahead. We’re not talking about grants here. The start-up money must be repaid to the government — with interest. All of the CO-OPs will have to offer coverage through the Internet-based marketplaces (exchanges) the reform law requires states to establish by January 1, 2014.

If all goes as planned, every state will have at least one CO-OP. And there are reports that at least one plan already has negotiated a good rate with local hospitals by explaining how CO-OPs can help them reduce the amount of uncompensated care they incur every year by treating uninsured patients.

One of the health policy experts who is optimistic about the transformative potential of CO-OPs is Mila Kofman, former insurance commissioner in Maine who is now a research professor and project director at Georgetown University’s Health Policy Institute.

“With seed money from the federal government, along with the subsidies moderate-income and middle class individuals and families will receive if they buy coverage through the exchanges, the CO-OPs could be significant game-changers, especially in states where the whole market is dominated by a single company.”

Kofman speaks from experience. The individual and small group marketplace in Maine was dominated by for-profit Anthem Blue Cross (a subsidiary of WellPoint) until the state selected nonprofit Harvard Pilgrim Health Care to provide coverage options for small businesses, individuals and self-employed residents through a public-private partnership called DirigoChoice — a precursor to the state exchanges — a few years ago. In 2004, Anthem had a 91 percent share of the individual market and a 68 percent share of the small business market. Five years later, Anthem’s share had dropped to 49 percent in both the individual and small business markets because of competition from Harvard Pilgrim.

“Nothing else changed,” said Kofman. “It was this private-public partnership that enabled Harvard Pilgrim to come in and open the market to more competition. And when you open the market up to competition, other companies can grow, too, which is what happened in Maine.”

Kofman said she believes there is great potential depending on how the CO-OPs are organized. She likes what she has seen so far. At least three of the 12 organizations receiving grants so far will grow out of community health centers that have a focus on providing primary care. Some others are affiliated with Medicaid managed care organizations that also have an emphasis on prevention and primary care.

“Their philosophy is very different from what most of us are used to,” she said.

It is this different philosophy that could transform the U.S. health care system, especially if the nonprofit CO-OPs — which, blessedly, will not have to devote a lot of premium revenue to satisfy Wall Street investors — live up to their potential.