Co-ops await launch commands

August 1, 2011

Reform calls for establishment of the Consumer Operated and Oriented Plan, which permits new nonprofit insurers to offer plans in individual and small group markets

When is a co-op not a co-op? Health reform calls for establishment of the Consumer Operated and Oriented Plan (CO-OP), which permits nonprofit health insurers to offer competitive plans in the individual and small group markets. It may sound like a matter of semantics, but a true cooperative is owned and governed by members. This might not be the case with new CO-OPs, set to launch with grant money July 1, 2013.

For example, rural electric cooperatives still flourish across the country, many in areas that ceased to be rural decades ago. However, cooperatives in the healthcare arena are exceedingly rare. The two that operate under cooperative principles-HealthPartners in Minnesota and Group Health in Washington-both are decades old and have evolved into mature integrated healthcare organizations.

The CO-OP program has a budget of $3.8 billion to award grants to organizations for start-up costs and reserve requirements, which must be paid back in five and 15 years, respectively. The original budget amount was $6 billion, a figure that was reduced by congressional action in April and remains a target of political budget wrangling.

Experts on healthcare and cooperatives also question whether the program will be fully implemented.

The fact that cooperatives incorporated under general nonprofit statues are not bound to follow organizational criteria specific to cooperatives, such as democratic governance and member ownership, causes concern for the National Cooperative Business Assn. (NCBA), which testified before the CO-OP advisory board in January.

Entities created under legislation will operate as nonprofits under IRS regulation 501 (c)(29), which was established specifically for CO-OPs, says Adam D. Schwartz, a vice president for the association. The organization believes that CO-OPs will be created but hopes that NCBA's concerns about governance and the role of consumers will be taken seriously: Organizations should not be owned by physicians or be flipped to profit-making organizations after loans or grants have been settled.

"We don't want people to have a bad experience-that's a grave concern of ours," Schwartz says. "If we're given a fair shake, there's not a solution that cooperatives can't be an important part of."

In the fiercely competitive health insurance market, a new cooperative might not be able to compete on price but should be able to offer customer satisfaction. An appeals process for those denied treatment ideally would be handled by a group of member-owners who weigh the cost or the nature of a treatment against the overall cost structure of the organization.

Setting up a simple purchasing cooperative would not be capital-intensive, says Charles T. Autry, a partner at Atlanta-based Autry, Roland and Cole LLP. But Group Health and HealthPartners offer integrated care, which would be beyond the financial means of new organizations.

"From a political perspective, it's not government-run and not for-profit-that's a good compromise," adds Roland F. Hall, a partner in the firm. If funding remains available, activity should begin to pick up as the 2013 deadline for loan and grant funding nears. Schwartz says that groups looking at CO-OPs are active in 25 states, describing groups in Montana, New Mexico, Iowa and North Carolina as "fairly active."

Schwartz says the CO-OP legislation found broad support among those with widely differing political views because it provided a clear alternative to other federal healthcare programs.

The push to make physicians, hospitals and home health organizations more accountable for the care they provide will drive the need for CO-OPs, Hall says. The formation of cooperatives that are patient-centered with oversight by member-peers might not gain wholehearted support, but it likely wouldn't be met with much opposition either.

"In a cooperative, the only purpose is to serve members," Autry says. "Profit is not a bad word, but with no shareholders to return profit to, cost and quality of care become primary drivers. In other contexts [cooperatives] have been successful."