By John Reichard, CQ HealthBeat Editor
July 18, 2012 -- What will the emerging health care cooperatives funded by the health law look like? Do they have any chance of surviving the competition against big insurers?
It's too soon to say for sure how they'll fare. But in the case of an emerging cooperative in Utah awarded an $85.4 million federal loan last week, the organizers involved talk a good game. They also bring some experience to the table.
The Consumer-Operated and Oriented Plan (CO-OP) program found its way into the health law as a way of mollifying liberals angry about the failure of the overhaul to require a government-run public option plan to compete with for-profit insurers.
"These new private, nonprofit insurers will be run by consumers and are designed to offer individuals and small businesses more affordable, consumer-friendly, and high-quality health insurance options," Marilyn Tavenner, Centers for Medicare and Medicaid Services acting administrator, said in announcing the loan to Aarches Community Health Care to be headquartered in the Salt Lake City area.
The vast majority of the $85 million—93 percent—will go to assure the solvency of the co-op. The remaining seven percent is start-up money. Aarches is funded almost exclusively with federal money. Those funds can't be used for marketing, but the co-op plans to contact foundations and private businesses for donations to fund marketing activities.
The co-ops differ from traditional insurers in that more than half of their board members must be customers or members of the co-op. All board members must be elected by a majority vote of people enrolled in the plan. Profits must be returned to enrollees in the form of lower premiums, expanded benefits or improved quality.
Shaun Greene, chief operating officer for Aarches, shrugs off the critics who say co-ops can't compete. Greene is a West Point graduate who says he hasn't felt such a sense of mission about his career since serving in the first Gulf War. "We are looking to be a disrupter," he said in an interview. "If you go back and look at the history of disruptive business models, people always say, 'well, you can't do that.' Which is exactly why I think the opportunity is right.
"For us it's all about our vision around primary care, building a medical home, really reinventing the family doctor," he said. "It's a very simple concept. But it gets us off of the fee-for-service treadmill that so many doctors find themselves on today.
"Our vision is a retainer payment to physicians where they're incented to just take care of the patients," Greene said. "Instead of pumping, 30, 35 patients through a day, running as many services and tests as they can, they're now incented just to see less patients and take better care of them."
The medical home concept entails ready access to doctors and nurses, team-based treatment and lots of preventive care. How can that be accomplished and keep costs down?
Greene says Aarches will rely on federally funded community health centers for that piece of the system. Those centers already have a strong reputation for serving as medical homes, he said. And he adds that they are readily accepted by the Hispanic population Aarches will target in urban areas and by people in general in rural areas where health centers may be the only game in town.
But co-ops must provide hospital care too. That's where the experience of the company's CEO Linn Baker will come into play, Greene says. He notes that in the 1970s, Baker started up the health program for Utah state and local employees, called the Public Employees Health Plan (PEHP). And during his tenure, Baker instituted a "centers of excellence" approach to contracting with hospitals.
Under that system, the health plan contracted with facilities that offered the best deals on "episodes of care," such as coronary artery bypass surgery and knee surgery, Baker said in an interview. Plan members were given booklets explaining the benefits and risks of the procedures and how much various hospitals charged. While they could go to other hospitals, they were charged lower out-of-pocket fees if they went to the preferred hospitals.
This approach, similar to the tiered co-payments increasingly in use today, will be followed by Aarches in establishing its hospital network, Greene said.
Baker said he's long hoped to see such "transparency" adopted widely in the U.S. health system as a way to bring down costs and he sees an opportunity to help do that by coming out of retirement to run Aarches. "I've always believed in market solutions," he said.
Aarches officials said their aim is to be the low cost health plan in the Utah market.
How can they deliver the mix of services they're promising and make that happen? One answer they say is the Utah exchange that will offer the co-op among the menu of plans offered to uninsured state residents who will shop on the Utah insurance exchange using federal subsidies to help pay their premiums. That will give them access to thousands of potential enrollees who lack coverage now. It's a low cost way to reach potential enrollees, Greene suggests.
"This is not going to be easy," he admits. "It's going to be heavy lifting." But Aarches is projecting enrollment of 20,000 in 2014, 30,000 in 2015, and 40,000 in 2016.
Baker says he's had success competing in the past. PEHP was very successful in competing with other insurers for the business of colleges and school districts, he said, crediting the plan's relatively low administrative costs.
One major question hanging over the co-op is the fate of the health care law. What happens if Republicans make big gains in the elections and follow through on their promise to repeal the overhaul?
"Cooler heads are going to prevail whichever way the elections go," Greene predicts. But if federally subsidized purchase of coverage does disappear because the health law is dismantled, Aarches will have "mitigation strategies" in place that involve going after the business of self-insured employers, he said.