When originally proposed during the federal healthcare reform debates as an alternative to the dead-on-arrival Public Option, Consumer Operated and Oriented Plans were portrayed as farmers markets for health insurance benefits-- locally governed and locally produced, appealing to a sense of community. Like farmers markets, CO-OPs seemed to be a niche product, and have been an afterthought to the larger reform bill. But CO-OPs may have a bigger impact in 2014 than the much-hyped accountable care organizations.
The average consumer may like the feel-good idea of buying produce from nearby farms, but for weekly groceries, the vast majority shop at supermarkets like Walmart, Safeway or Kroger, preferring wider selection and one-stop shopping convenience. Practically speaking, how can startup CO-OPs compete with UnitedHealthcare or Blue Cross and Blue Shield plans? How can the tiny farmers market get the same purchasing power and operations management as the larger supercenters?
This is where a company like Averde Health steps in, offering nascent CO-OPs services such as administration, financial management, plan design, provider networking and underwriting. The local CO-OPs would handle risk-filing, insurance licensing and marketing. Access to Averde’s provider network (or that of another vendor) may be the most important component for potential CO-OPs. Averde is already working with applicant CO-OPs in Florida, Texas and Colorado, where the company has in recent years established sizable provider networks through its commercial administrative services organization business, which specializes in pairing large, self-insured groups with high deductible products.
The company claims that its existing contracts with providers have discounts and terms that are competitive with the larger MCOs, and much cheaper than rental networks. Furthermore, there may be willingness on the part of providers to deal with CO-OPs more favorably because of frustration with existing MCOs.
Which begs the question: if the operations, plan design, network and other management are handled by an out-of-state vendor, when is the CO-OP indistinguishable from the MCO? CO-OP rules established by the federal government dictate that surplus revenue must be used to lower premiums, improve benefits, improve quality of care, repay loans and/or accumulate reserves. In theory, this is the same mission for other nonprofit MCOs not beholden to shareholders.
The CO-OPs may get some benefit from branding. After all, niche brands such as Ben & Jerry’s, Burt’s Bees and Tom’s of Maine are owned by conglomerates Unilever, Clorox and Colgate-Palmolive, respectively. Like these homegrown brands, CO-OPs may develop the aura of a high-quality product with a dedicated fan base and responsive management, while being backed by a more sophisticated organizational apparatus.
But in the end, most consumers will choose their health insurance based on cost, especially when the insurance exchanges launch in 2014. Averde Health should be able to provide managerial skills and cut into overhead for partner CO-OPs, but the cost advantage will come from the federal government.
In January 2012, the first round of loan awards for CO-OPs will be announced by CMS. These are low-interest loans designed to help CO-OPs with startup costs and solvency. If CO-OPs contract with companies like Averde instead of having to build admin and provider networks from scratch, these plans could make their premiums very competitive, just as the exchanges are launching in 2014.
If all things are equal as far as premium and benefits, the CO-OP brand could make these plans immediately competitive with their established larger rivals. If consumers are in the market for one specific product, whether it be kale or high-deductible insurance, they may be inclined to shop at the local CO-OP rather than the large corporation in 2014.