CMS Issues Rules for Health Insurance Co-ops

The Center for Medicare and Medicaid Services (CMS) has issued rules impacting the creation of co-ops, or private not-for-profit insurers created by Patient Protection and Affordable Care Act.  The co-ops will receive funding via $3.8 billion in government loans.  They will be run by consumers and will qualify for start-up loans if they have a high probability of becoming financially viable.  CMS will determine viability based on evaluations of their legal, operational and business plans, according to Richard Popper, director of the Office of Insurance Programs at the CMS.  Additionally, CMS will offer “solvency” loans to provide insurers with the legally and financially required reserves.  The co-ops are intended as non-commercial alternatives for insurance consumers joining the health insurance exchanges that will begin in 2014.  The rules will require that any co-ops’ profits to go to reducing their customers’ costs or improving their care.  “That’s what really makes these plans different and why Congress chose to include these in the Affordable Care Act,” Popper said.

Anyone who is confused about the status of their state’s insurance exchange can take advantage of two excellent resources for clarification.  One is a primer put out by the non-profit Kaiser Family Foundation which answers many basic questions about the online exchanges, where millions of individuals and small businesses will price and compare insurance plans starting in 2014, in clear-cut terms.  Additionally, the Commonwealth Fund provides its own explanation of how the insurance exchanges will work.

Co-ops will provide consumers with a wider range of choices, greater plan accountability and help ensure a more competitive insurance market,” said Steve Larsen, director of the Center for Consumer Information and Insurance Oversight.  This “announcement shows how the Affordable Care Act is bringing new choices and giving consumers a voice in insurance markets throughout the nation.”

The co-ops are structured to increase competition in the insurance market and provide additional options for people and small businesses looking for affordable health insurance.  Their organization is similar to that of credit unions: profits are used to benefit members of the co-op, which can include reducing premiums, improving health benefits, improving the quality of care, expanding enrollment or taking other actions to contribute to stabilizing coverage.

“The co-op program also seeks to promote improved models of care. Existing health insurance cooperatives and other business cooperatives provide possible models for the successful development of Co-ops around the country,” noted the proposed rule.  “One major barrier to continued development of this model has been the difficulty of obtaining adequate capitalization for start- up costs and state reserve requirements.  The Co-op program is designed to help overcome this major barrier to new issuer formation by providing funding for these critical activities.”

Writing on Kaiser Health News, Christopher Weaver says that “The rules would steer a total of $3.8 billion in low-interest loans to groups such as The Evergreen Project in Baltimore, seeking to launch the so-called Consumer Oriented and Operated Plans. The health department hopes at least one ‘co-op’ will launch in each state and anticipates funding a total of 57 around the country.  The strategy is that new health plans run by consumers – most board members would also have to be plan members — would find ways to improve care, rather than boost profits. The new plans, made possible by the seed money, would also compete with established insurers to drive prices down.  The Evergreen Project, named after the coffee shop where its founders held initial meetings, is among a small cadre of groups that are laying the groundwork to launch these nonprofit insurers to care for families and individuals who will be required to buy coverage under the health law — but may be hard pressed to afford it.”

Dr. Peter Beilenson, one of the founders, said The Evergreen Project has already raised $315,000 in foundation grants and completed a 16-month feasibility study.  The members are expecting a report from hired actuaries before applying for the loans to move forward.  The key factor: Could the co-op actually cost less than other insurers?  “We actually think we can bring it in” — meaning the plan’s premium prices — “under Aetna and Coventry,” Beilenson said.

Mike Leavitt,  a former Secretary of Health and Human Services and governor of Utah said that governors need to take the lead in creating health insurance exchanges or the federal government will dictate how the exchanges should be run.  “This is a profoundly important moment for states,” Leavitt said.  “States need to lead.  Too often, we have just deferred this to the federal government, and the federal government needs guidance (from the states) to do it.”  Iowa Governor Terry Branstad said Iowans are “confused and, I think, very upset with what’s going on” with healthcare reform implementation.  According to Branstad, consumers must take “ownership” of their health decisions and the costs.

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