Washington D.C. — One goal of the Patient Protection and Affordable Care Act, signed by the President on March 23, 2010, is to create more nonprofit health insurance issuers. Many experts believe Consumer Operated and Oriented Plans (CO-OPs) will provide better insurance products at lower price than a traditional insurance companies. But fostering the creation of new CO-OPs will be no simple task.
In June 2010, the Department of Health and Human Services tasked 14 experts including one actuary, attorneys, consumer advocates, regulators, and financial experts with finding the best strategy to aid in the development of new CO-OPs. Since then, members of the Consumer Operated and Oriented Plan (CO-OP) Program Advisory Board have worked tirelessly to provide the DHHS Secretary and Congress with a list of recommendations to address challenges these new CO-OPs might face.
During its meetings, the Advisory Board heard a great deal of testimony from both invited experts and the public about the financing challenges new qualified nonprofit health insurance issuers will face. “We heard from a number of consumer advocates interested in finding the best ways to keep insurance rates down,” said Finance Subcommittee Chair Donna Novak. “They believe finding ways for CO-OPs to compete in the marketplace could be one way to do that. It was our job to come up with a list of recommendations to help CO-OPs succeed.”
Some of the challenges CO-OPs will face include achieving adequate membership, competing with current issuers and contracting with a sufficient number of providers at competitive rates. The testimony also emphasized how important it is for CO-Ops to be able to meet and even exceed state minimum solvency requirements in order to protect consumers, maintain sufficient capital reserves to fund growth, and provide for future financial stability.
Fortunately for those new CO-OPs, their creation will coincide with the federal requirement that states set up new insurance exchanges. An insurance exchange is an organized marketplace for the purchase of health insurance – allowing customers to compare and purchase insurance options in one place. By selling products through the exchange, new CO-OPs can better compete with established insurers and have a better chance for success. “A new insurance company will have a hard time quickly creating a membership base that would allow it to be financially viable. These exchanges will be extremely helpful to new CO-OPs,” said Novak, also the founder of Novarest Actuarial Consulting.
During the testimony, members of the public also stressed the importance of providing prospective CO-OPs with planning funds to conduct studies to determine whether it will even be possible to create successful nonprofit health plans in their markets by 2014. Advisory Board members agreed that loans should be provided in two phases, a planning loan and a development loan. Since it’s critical that loans only be given to organizations that are likely to succeed, the Advisory Board recommends that the Department use a team of experts to evaluate the business plans of the CO-OPs and determine if they qualify for a loan. The business plan should show how the CO-OP is prepared to support the start-up of the organization and reasons supporting its likely success. The plan should also describe the anticipated capital needed over time and identify the milestones that will reach before additional funding is released. “The most important thing is to have qualified experts review the loan applications,” said Novak. “We have a lot of recommendations for what these experts should consider. The bottom line is, you can’t create a one-size-fits-all measuring stick that will allow you to accurately choose CO-OPs that will survive. We need experts and review committees on the ground to perform detailed reviews of these applications.”
Advisory board members made several other recommendations:
- The Department should maintain regular communication with the management of the CO-OP and monitor its performance.
- CO-OPs should be able to accumulate reserves to provide for enrollment growth, economies of scale, financial stability, and stable coverage for consumers.
- Grants should be structured in a way to allow the CO-OPs meet state solvency requirements.
One area of concern for board members is the statutory provision requiring that CO-OPs issue “substantially all” of its qualified health plans to individuals and small groups. “It will be difficult to achieve quick growth and maintain economies of scale or financial stability if it has to rely solely on the issuance of policies to individuals and small employers,” said Novak. The Advisory Board recommends that the Secretary gives applicants a number of years to meet this requirement. They say CO-OPs should be able to collaborate with labor organizations, large employers or other groups who could share administrative services or provider arrangements. Since CO-OPs will need a firm base on which to build their business, board members say in the initial years of operation, CO-OPs should be allowed to issue policies to, contract with, or administer a self-insured plan for groups of more than 50 or 100. This would allow them to build their business over time to a point where they can meet the “substantially all” requirement of issuing policies to individuals and small groups.
The Advisory Board is scheduled to vote to accept the final report on April 15th. “I think these recommendations are really good. We provided enough detail to give significant guidance to the Secretary, but they are not so restrictive to inhibit the Department from making appropriate decisions going forward as things change,” said Novak.