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More on co-ops

What follows is excerpted from AIS Health, which publishes Health Plan Week:

The co-op idea was proposed by SFC member Kent Conrad (D-N.D.) as an alternative to the controversial public insurance option. Conrad said he proposed the idea because the public option would not win the 60 votes needed to pass it in a full Senate vote and could doom the final reform bill. In a prepared statement, Conrad said “health care experts” predict co-ops will enroll 12 million customers, which would make them, collectively, the third-largest health insurer nationally.

While there are few details about how the envisioned co-ops might work, or whether they would reduce coverage costs, health plans worry that any government-backed entity could have unfair competitive advantages. “Any time an entity can be both a player on the field and the referee, there is every reason to believe there will not be fair competition,” says Robert Zirkelbach, a spokesperson for America’s Health Insurance Plans (AHIP), an industry trade group. He notes that AHIP has agreed to other proposals such as guaranteed-issue coverage and the elimination of pre-existing condition exclusions.
While Conrad has said the co-ops he envisions would be owned by their members, Devon Herrick, a senior fellow at the right-leaning National Center for Policy Analysis, says if co-ops are unable to attract enough members, there is a danger the government would step in. “Co-ops would have much of the same incentives and cost structures that nonprofit and for-profit insurers have,” he says. “Without a competitive advantage, it’s hard to see how they could lower premiums sufficiently to attract huge enrollment.”

While several heath care co-ops already compete against private health plans in some markets, it’s unclear how such a model would rein in coverage costs nationally. During an Aug. 12 audioconference sponsored by AIS, Allan Wearing, sales and marketing director at Group Health Cooperative of South Central Wisconsin, explained how its model differed from that of private health insurers. One of the biggest differences, he explained, is that providers receive a salary, rather than being reimbursed for each service provided. And because those providers are employees of the co-op, there is a financial incentive to focus on outcomes rather than to increase revenue through volume, he said. Wearing said his co-op’s costs are marginally less than those of its competitors primarily because of its fixed-fee contracts with its own doctors.

But co-ops could be costly to set up. Because they wouldn’t immediately have a network of providers, co-ops likely would need to rent networks until they were able to build their own, said James O’Connor, a principal and consulting actuary at Milliman Inc. and another speaker in the audioconference. They also would likely need to contract with insurance carriers for administration, marketing, claims adjudication and underwriting. “It could be a major expense [for co-ops] to develop their own systems,” he said.

To order a recording of the Aug. 12 audioconference, What Health Insurance Cooperatives Would Mean for Health Plans, call (800) 521-4323 or
click here.


Senator Kent Conrad recently introduced what he characterized as a compromise on the contentious issue of having a public plan under healthcare reform: a healthcare co-op. This interview with Milliman principal Jim O’Connor analyzes the co-op concept in more detail.

Q: What is a co-op and how does it differ from a public option?

A: A cooperative health plan, or co-op, is member-controlled rather than government-controlled, and is typically not a for-profit corporation. A co-op must negotiate its payment or reimbursement rates for hospitals and physicians in the market, and cannot dictate them through legislation and regulation like the government could under a public plan. With a co-op, the roles of government regulator and health plan providing coverage are kept separate. The co-op concept is oriented around member decision-making and control, distinguishing it from for-profit insurance carriers. Because it would compete against for-profit and other heath carriers, however, a co-op must offer products that are attractive to the public in a marketplace with choices and must employ prudent rating and enrollment practices if it is to be successful. Determining any requirements or restrictions on those practices, as they apply to all health plans, is one of the many important questions under reform. 

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