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May 14, 2012
WICHITA For many, the term co-op evokes images of grain elevators, Depression-era workers stringing electric lines or maybe the more contemporary picture of a place where local-food devotees go to get a weekly helping of fresh produce.
But a group at work in Wichita has a different vision. They are working to develop a member-owned co-op that would provide thousands of Kansans with health insurance. And they want the coverage to be different from plans offered by traditional carriers.
Anne Nelson, associate director of the Central Plains Health Care Partnership in Wichita, an affiliate of the Medical Society of Sedgwick County, said the goal is to create a Kansas cooperative that offers individual and small business coverage that is both affordable and innovative in that it will emphasize patient-centered and preventive care.
“There will be a direct relationship with the people who are served by the products in the plan. If a product isn’t working based on consumer feedback, the consumer leaders (of the cooperative) can make changes,” Nelson said.
If the co-op does well financially, it would be required to use money not needed for claims or state solvency requirements to lower premiums or increase benefits.
Working with a small planning committee that includes health care providers, lawyers, actuaries, insurance experts and representatives of the business community, Nelson is preparing to apply for millions of dollars in federal loans to fund the launch of the nonprofit health insurance cooperative. She said she plans to submit the loan application this fall to the U.S. Department of Health and Human Services, which already has provided nearly $850 million in start-up and sustainability loans to health insurance cooperative in 10 states.
The loans approved earlier this year ranged from around $57 million to a cooperative in Oregon to nearly $175 million to the Freelancers Health Service Corporation, a union-affiliate co-op in New York. Midwest Members Health, which is planning to offer coverage to residents of Iowa and Nebraska, received $107 million.
“We don’t know yet what our application will be. But it’s a multimillion-dollar project,” Nelson said.
Money in health reform law
Creating more competition in the health insurance marketplace is one of the objectives of the controversial and still not-well-understood Affordable Care Act. The health reform law authorizes $3.4 billion in low-cost federal loans to start and help sustain at least one consumer-governed health plan in each state (PDF).
Members of the group working on Kansas’ application understand that they may have a timing problem. The U.S. Supreme Court heard arguments in March in a lawsuit filed by Kansas and 25 other states challenging the constitutionality of the law. The court is expected to decide the case early this summer, and there is a chance — some say a good one — that it will overturn the law or portions of it.
If that happens, the Kansas group will explore other options, Nelson said.
“We have a motivated group of leaders that want to do something here in Kansas,” Nelson said. “That’s not lost even if the legislation is overturned. I assume that this group of people would look for another opportunity and work on something that would still make sense for Kansas.”
Tim Witsman, chief executive officer of the politically conservative Wichita Independent Business Association, is one of those motivated leaders. Though many of his members are undoubtedly among the millions of Americans opposed to the health reform law, Witsman said the funding it provides for member-owned insurance cooperatives creates a singular opportunity to address one of businesses’ top concerns: rising health insurance costs.
“We’re probably not going to have this opportunity ever again in our lifetimes, to have the funding to try something really innovative,” Witsman said.
Few object to health insurance cooperatives, but many experts are skeptical about whether they can introduce competition into highly concentrated marketplaces or be viable options for large numbers of Americans.
Timothy Jost is one of those skeptics. The Washington Lee University law professor who writes extensively about health care policy was interviewed about co-ops by The New York Times in 2009, when their inclusion in the reform bill was being debated.
“It’s very hard to break into an insurance market,” Jost said. “The thought that you’ll have a few businessmen get together and set up a co-op that will compete with Aetna or Cigna is just dreaming. It’s not going to happen.”
Likewise, establishing a co-op that can compete with the dominant players here, Blue Cross Blue Shield of Kansas and UnitedHealthcare, will be a challenge, said Sandy Praeger, the state’s insurance commissioner.
“I think on paper it looks good, but the devil will be in the details in terms of whether or not they can compete,” Praeger said. “From an insurance standpoint, our biggest issue will be monitoring solvency.”
In testimony delivered last year to the Consumer Operated and Oriented Plan Advisory Board on behalf of the National Association of Insurance Commissioners, Praeger said unlike many traditional carriers, nonprofit plans can’t go to the markets when they need capital to meet state solvency requirements, cover unexpectedly high claims or expand their operations.
“In addition to these challenges, which are unique to nonprofit plans, co-op plans will face the same formidable challenges that all new insurers face,” Praeger said in her testimony. “The most daunting of these will be the difficulty of assembling a provider network and negotiating provider payment rates that allow them to be viable, all before they have amassed a significant market share that will give them leverage in negotiations and make themselves attractive to providers.”
The involvement of the Sedgwick County medical society could help the Kansas co-op meet the challenge of forming a provider network, Praeger said. The health insurance exchange that would be created if the reform law stands also could help level the playing field for a nonprofit start-up.
Still, HHS projections buttress the concerns of co-op skeptics. They indicate that up to 40 percent of the loans given to the start-ups could end in default.
Despite the market challenges, health insurance co-ops have been viable options for a long time in some parts of the country.
Bill Oemichen heads a network of 640 Wisconsin and Minnesota co-ops of all types. He concedes that starting and sustaining nonprofit insurance companies isn’t easy. But he said health co-ops that belong to his network have created a strong market niche, covering 1.8 million residents of Wisconsin and Minnesota.
“The reality is they have proven to be successful in certain parts of the country, and there is no reason they can’t be successful in Kansas as well,” said Oemichen, who is advising the Kansas planning group.
“They seem to have the right skill sets,” he said of the Kansas group. “It looks like they have many of the elements they need to be successful.”
Final analysis under way
A consultant hired with planning money provided by several Kansas health foundations has given the co-op’s business plan a tentative thumbs up, Nelson said.
“We’ve been working with a team of folks to assess that and we’ve come to the conclusion that it does make sense,” Nelson said. “We’ve identified no one else in Kansas who is applying for the loan funds. So if we don’t apply, there won’t be a new health care cooperative in Kansas.”
A more detailed study of the market opportunity, the business plan and the co-op’s ability to form an adequate provider network must be completed before the loan application can be submitted. The results of that study are expected in June. If everything pencils out, Nelson said, she plans to apply for start-up and solvency loans by the first of October.
Pulling the trigger on the loan application will be “scary,” said planning committee member Witsman. But he said that won’t happen unless a strong business plan is in place.
“I’m very impressed with the people working on things,” he said. “So that gives me confidence.”
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