Alternative Health Plan Designs

July 21, 2011

A little noticed provision in the Affordable Care Act authorizes the federal government to provide billions of dollars in start-up and capitalization funding for new state-based Health Insurance Cooperatives (CO-OPs).


On July 18th, the Centers for Medicare and Medicaid Services (CMS) announced it was taking the steps necessary to “encourage the creation of Consumer Operated and Oriented Plans (CO-OPs)”  According to CMS, these new, private non-profit, consumer-governed health insurance plans will “help increase competition and give consumers and small businesses additional affordable health insurance choices.” 


CMS is proposing standards for CO-OPs, as well as the requirements a CO-OP must meet in order to qualify for loans to help start-up and capitalize these new health plans. Approximately $3.8 Billion in federal loans will be available to these new entities.  Because these are loans and not grants, all of the money must be repaid with interest.  Loans will only be made to nonprofit entities that demonstrate a high probability of becoming financially viable.


Despite the stated “high probability of becoming financially viable” requirement, CMS estimates that there will be a 40% default rate for the start-up and capitalization loans. 


Loosely modeled after the Rural Electric CO-Ops familiar in many rural areas of the country, these health insurance CO-Ops are intended to “give consumers and small businesses control over their own health insurance.”  And, because these CO-OPs must be private, non-profit insurers governed by their members, the expectation is that these plans will offer more affordable consumer-friendly health insurance options than those available from for-profit insurance companies.


Under the CMS proposed standards, CO-OPs will be required to use any profits the plan generates “to benefit it members, including actions to lower premiums, improve health benefits, improve the quality of members’ health care, expand enrollment, or otherwise contribute to the stability of coverage for members.”


The goal of the program is to create a CO-OP in every state. Once up and running, the CO-OP plans will be available for purchase through either the Affordable Health Insurance Exchanges or the Small Business Health Option Program (SHOP) Exchanges mandated by the Patient Protection and Affordable Care Act.  However, unlike private insurance products that will have to be certified by the federal government to be available through either of the Exchanges, CO-OP insurance plans will not be subject to federal government certification and will automatically be available in the Exchanges. 


CO-OP insurance products are not new.  According to CMS, approximately 2 Million people currently obtain their health insurance through a co-operative insurance entity.  Existing CO-OP insurance entities are ineligible for these start-up or capitalization loans. 


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