Will CO-OPs Bring A Sense Of "Community" Back To Health Care?

Okay, so...

The Supreme Court has upheld the constitutionality of PPACA. And the sun came up the next day.

I don't expect that the Court's decision changed anybody's mind about Obamacare. People who hated it still hate it, and are adjusting their political strategies accordingly. And those who hailed the law still like it.

But only in Washington does passing (or sustaining) a law mean the same thing as solving a problem. With the constitutionality of the law settled (for now, at least), the next focus should be on execution...implementation of some parts of the law that could have a positive impact on the availability of affordable health coverage in a more transparent and competitive market.

And one element of Obamacare which may have the potential to change a few markets is, in effect, an experiment to turn back the clock to a simpler (and vastly less expensive) time, when the health of a community was in the hands of community members themselves.

These experiments are called "Consumer Operated And Oriented Plans," or "co-ops."

Before there was employer-sponsored health coverage, before there were insurance companies, health care was often a community responsibility. The "communities" were church groups, ethnic organizations, or "benevolent societies," self-selecting communities through which members cared for one another. Everybody pitched in a little money, and if any member became ill, the "community" would assist the family in meeting medical expenses.

Those societies began to be replaced in the 1930's by Blue Cross and Blue Shield plans, larger, non-profit mutual insurance companies with Boards selected from among the members. These plans became the vehicles through which, especially after World War II, large employers began to provide health coverage to their workers, with the premiums covered as a substitute for wages, which were frozen for a time after the War.

Relatively few of these not-for-profit entities remain in the market today. The Cross and Shield plans began consolidating in the '90's into corporate giants. The Boards of a number of once-prominent non-profit health plans decided around the same time that their members' interests would be best served by being acquired by larger companies, the proceeds of the sale being used to set up foundations to maintain a sense of "community purpose."

Each step in the evolution of non-profit benevolent societies into corporate giants has moved health plans an additional step or two away from the interests of the member/customer/patient. With few exceptions, health plans are very large, very corporate, and their leaders are very dependent upon meeting the expectations of Wall Street, rather than of "Main Street."

That could begin to change...Maybe...

Thus far, 16 non-profit groups in 16 states have received nearly $1.25 billion in loans to establish non-profit health plans whose governing bodies will be selected from among their members, and whose surplus earnings (if there are any) will be re-invested in the development of improvements to the plans themselves, rather than distributed among stockholders. A complete list of the groups which have received funding is here: http://www.healthcare.gov/news/factsheets/2012/02/coops02212012a.html.

With the issue of PPACA's constitutionality settled, these groups should begin receiving funds to get themselves organized, and to achieve the killer deadline of bringing new, non-profit health plans into their markets by December, 2013, with coverage effective dates of January 1, 2014.

Most of these erstwhile co-ops have already announced their plans to offer plans in co-operation with their states' insurance exchanges...even in states which have yet to act to get into the exchange business.

The non-profits sponsoring these co-ops have considerable expertise, and some presence, in their states' health care and insurance markets, often as Medicare and Medicaid managed care plans. Some have a particular affinity for groups within their states, i.e., targeted markets to serve; the biggest winner is New York's Freelancers Union, which has won $340 million in loans to create plans for self-employed professionals in New York, New Jersey, and Oregon.

All of these groups have pledged to be "not just another insurance company." In many cases, that translates into pay for co-op leaders which is not "excessive." Other than that, plus the composition of their Boards (presumably volunteers), and their pledge to re-invest their surplus earnings, I'm hard-pressed to see what important differentiations will separate them from all those other insurance companies.

Co-ops must still enter into agreements with hospitals, physicians, and other providers, at some cost. Some co-ops are sponsored by existing managed care plans, which see branching out into the private market as a way to augment patient volume. Will those providers expect their privately-insured customers to be treated at about the same rates as their Medicare and Medicaid recipients, or will they expect a higher rate of payment, thus leading to the cost shifts typical of most provider networks?

How will they distribute and sell their products? Will they try to develop networks of agents, and pay them accordingly, or will they take the risk of experimenting with more cost-effective, technology-oriented marketing solutions?

While they may be technically non-profit, presumably the co-ops will still be subject to state premium taxes. They will have to maintain state-mandated reserves. The plans will need to comply with all coverage mandates required by their states.

My sense is that, whatever they may SAY, in real life, co-ops will need to operate very much like real insurance companies in order to compete and succeed in the marketplace. They're going to have to pay providers, sell products to customers, pay claims, and market themselves in states which are already dominated by huge competitors with very deep pockets. A very tall order.

The way for these groups to succeed will be 1) to get some sort of preferential pricing from providers (good luck), 2) keep their administrative ratios under 15%, 3) sell direct via the Web, and 4) use whatever short-term advantages they can produce to create enough critical mass (customers) to strengthen their hands in their continuing dealings with providers who want to get paid.

Co-ops will work best if their Boards see themselves as advocates for their members, and are in a position to negotiate in a constructive, but adversarial way with their providers. AND if their product and pricing mix is attractive enough that their markets view the co-ops as THEIR health plans, working for them. Part of that will be marketing, but a LOT will be execution, for the long term.

A famously aggressive Cleveland hospital CEO once responded to being cut out of a regional PPO network by starting up her health system's own health plan. To attract providers, the plan offered higher levels of reimbursement than the big PPO did. To attract distribution, the plan offered higher commissions. Employees of the health system were required to obtain coverage through the system's own health plan. At first, there was a lot of fanfare, including the CEO's own pronouncement that "any fool can run a health plan." The company soon went bust. Turns out the CEO was right: Any fool CAN run a health plan. But it takes a very special kind of fool to run a health plan right...and for the right reasons: to benefit the members collectively, for the long term...