I’ll admit I was an early skeptic of the CO-OP program, or, “Consumer Oriented and Operated Plans,” as created under the Affordable Care Act (ACA). CO-OPs are designed to inject new competition into the health insurance exchanges by providing a consumer-run alternative to traditional insurance companies, backed by hefty federal loans. Back in early 2011 I called them a “smart political device” designed by Senator Conrad to help get the ACA through the Senate, but predicted they would likely struggle to compete with larger, more established insurance companies. When Congress subsequently sliced the program’s funding (from $6 billion to $2 billion) to help pay for deficit reduction, I thought my early concerns were verified. And in fact, while the law originally envisioned one CO-OP in each state, the budget cuts mean that only 24 CO-OPs received the necessary start-up loans.
But two and a half years later, while I’m not quite ready to eat my words, a recent report from the Department of Health and Human Services’ Office of Inspector General (OIG) on the CO-OP program suggests that many of these new plans are poised to offer consumers a viable and affordable new health insurance option in 2014. The OIG report, which reviewed the 18 CO-OPs receiving the first round of federal loan funds, finds that “CO-OPs have made progress…and met 90% of their milestones during the period of our review.” The milestones checked by the OIG included tasks such as achieving state licensure, hiring key staff, and contracting with vendors. For example, the OIG found:
- As of June 2013, 19 of the 24 CO-OPs had received state licenses. (One, in Vermont, was denied a license but is reorganizing its governance to address the state’s concerns. Licenses for the remaining 4 CO-OPs are presumably still under review).
- CO-OPs will rely heavily on outsourcing of customer service, IT support, legal functions and claims processing in order to be up and running in time for October 1 open enrollment. Fourteen CO-OPs will outsource consumer service functions and 16 will use an outside vendor for claims processing.
- The CO-OPs have hired key personnel to manage operations and established transitional boards of governance.
- All the CO-OPs will have governing boards that include majority consumer representation. Consumer positions on the boards range from 51-100 percent.
However, the OIG report also contains some warning flags for the CO-OP program. In particular, they note that 15 of the 18 CO-OPs reviewed will contract with existing provider networks rather than assemble new networks. In other words, they will need to “rent” a network from another insurance company. As the OIG correctly notes, outsourcing the network could pose challenges for the CO-OPs, particularly for achieving program goals of improving care delivery and enhancing primary care.
Encouraging “care coordination, quality and efficiency…in local provider and health plan markets” is a critical goal for the CO-OP program, and the CO-OPs’ applications for federal loans proposed initiatives such as:
- “Contractually requiring physicians to communicate with one another.”
- Managing “care transitions across health care settings.”
- “Provider data sharing from claims, clinical notes, and peer data to develop best practices for care coordination.”
- “Intensive primary care management for patients with multiple chronic conditions.”
- “Exclusive provider or medical home models that require patients to adhere to a treatment plan.”
It is not clear, however, how the CO-OPs intend to execute these initiatives when the majority of them will have to rely on their competitors to negotiate contracts and communicate with local doctors, hospitals and other providers. According to the OIG, the CO-OPs reported that they will need to “find networks with providers who are aligned with the CO-OPs mission to ensure consumer-focused care at competitive reimbursement rates.” As many health plans have already discovered, this is easier said than done.
CO-OPs do have some early advantages, however. First and foremost, they’re the recipients of generous federal start up loans that have helped them meet states’ reserve requirements, which is one of the biggest barriers for the creation of a new insurance company. These loans also could allow CO-OPs to keep premiums low, attract market share and perhaps, over time, build networks of providers from the ground up that share their vision of integrating and improving the quality of care. Second, they may be able to leapfrog some of the technological infrastructure of their competitors, allowing them to be more innovative and efficient. The CO-OPs will have to move fast, though. Federal law requires the start-up loans to be paid back within just 5 years, and their solvency loans within 15 years.
Given the current lack of non-profit, consumer-oriented health plan choices in too many states, hopefully the CO-OPs will not only pay off their loans but successfully transition from a “smart political device” to a viable and affordable health plan option.