Healthcare / Politics

CO-OPs: a new competitor in the insurance exchange market

Under the Patient Protection and Affordable Care Act (PPACA), Health and Human Services (HHS) Secretary Sebelius is given the responsibly to fund a Consumer Operated and Oriented Plan (CO-OP) program in every state or expand CO-OPs in states that do not have one.  A CO-OP is a non-profit, consumer owned and governed health insurance organization.[1]

On February 21, 2012, the government distributed its first round of CO-OP loans, ranging from $56 million to $174 million, to seven organizations in eight states: Iowa, Montana, Nebraska, New Jersey, New Mexico, New York, Oregon, and Wisconsin.[2] A total of $639 million total  was given out, only a small portion of the $3.8 billion available for other CO-OPs[3]. More awards are predicted to be given on a rolling basis, until all CO-OPs are funded by July 1, 2013.

CO-OP services are targeted at individuals and small businesses that cannot afford coverage from large, private, health insurers. This new health care insurance is expected to be available through state insurance exchanges by January 1, 2014, to compete equally with other insurance plans. However, the five month gap between the last award given out and the opening of state insurance exchanges does not leave a lot of time for CO-OPs to be created and functional for the public. There are many concerns that CO-OPs will not be ready in each state to attract enough business to be financially sustainable by the opening of the exchange market.

Before PPACA required the creation of CO-OPs in every state, there were very few functioning health insurance cooperatives. Two of the most successful CO-OPs currently established are Group Health of Washington and HealthPartners in Minnesota. These CO-OPs have established a consumer base and developed a broad network with physicians and hospitals. [4] Yet, these established CO-OPs do not follow the exact requirements of PPACA because of the corporate governance structure and the selling products and services to nonmembers. 2 Additionally, smaller health insurance CO-OPs run on a limited consumer pool and provider network base. This has resulted in limited services because of limited funding. There is nothing to suggest that these small consumer coops would be successful when scaled up to entire states.

Overall, the federal government and CO-OP organizations are taking a risk that these consumer run plans will be popular enough to be sustainable in the long run. Since these plans are not popular nation-wide, CO-OPs take the chance that people may not find the news plans more appealing. CO-OPs are competing on a market by taking customers away from their current plan or from a private, established company. It has not been proven to the customer that these recently funded CO-OP programs will provide better services for a better price than already popular private plans.

Likewise, because CO-OPs are a fairly new idea to the general public, problems in provider networking or establishing a competitive plan on insurance markets must be taken into consideration. Newly established CO-OPs do not have the success or longevity that other plan providers have accomplished and might have trouble attracting or retaining affordable coverage.  Without a trusted network, plan prices could not be as low as expected, which again can hurt the CO-OP appeal.

Nonetheless, consumers or small business might find CO-OPs more appealing once they have established themselves financially and professionally. Until then, there is little confidence that CO-OPs will be successful on a state wide scale. This could lead to financial instability if CO-OPs do not gain the targeted amount of customers. Although the money from loans and grants for start-up costs will be a great assistance for state CO-OPs, time will tell if these new insurance plans will be able to support themselves in state exchanges.  All in all, the government is loaning out billions of dollars to organizations that have not proven themselves to be successful statewide over a long amount of time.

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