Middle of the pack

Co-op plan premiums suggest good long-term prospects

New, consumer-governed, cooperative health plans created by the healthcare reform law face some early challenges as they propose rates for plans they will offer for the first time in October. But higher-than-expected premiums suggest better long-term survivability, analysts say.

The authors of the Patient Protection and Affordable Care Act hoped the not-for-profit co-op plans would foster greater competition in the health insurance market and offer more consumer-friendly policies. Since then, those plans received nearly $2 billion in federal loans to cover startup costs and to meet state solvency requirements.

In many states, one or two insurers control the bulk of the health insurance business. The promise of lower premiums from co-ops was a central part of the political pitch for authorizing the federal seed money for the Consumer Operated and Oriented Plan program.

But the early state rate filings for the exchanges show many of the co-op plans, which aim to operate in 24 states, propose to charge premiums that fall in the middle of the range of premiums proposed by other health plans. For instance, a rate analysis by the Colorado Consumer Health Initiative, a patient advocacy group, found premiums for plans offered by the state’s co-op, called Colorado HealthOP, will generally fall in the mid- to low-middle range of the 150 plans offered on the state exchange.

Bill Melville, a market analyst at Health-Leaders Inter study, a Nashville-based health insurance research firm, said this is similar to the proposed co-op plan rates in other states that have released proposed premiums for plans on the exchanges, including Oregon and Connecticut. “They’re not coming in way lower” than other exchange plans, Melville said.

But co-op plan advocates argue that the mere existence of the co-op plans already has lowered the overall premiums that other insurers have proposed on the exchanges. “If you look at pricing patterns in markets that have a lot of competition, like Oregon and Wisconsin, the prices tend to be more favorable than they are in markets where there is not competition,” said Barbara Markham Smith, who previously headed the cooperative program at the CMS.

Co-op plans and their advocates highlighted early challenges that drove their first-year rates and insist they will continue to strive for lower premiums.

“The goal is to come in with the lowest possible rate, and if they are not the lowest at the outset, that will continuously be the goal,” said Jan VanRiper, executive director of the National Alliance of State Health CO-Ops .

Forty-four proposals for co-op funding were pending at the time Congress cut the remaining start-up funding this year, from $3.4 billion to $2 billion, Smith said. The original allocation was $6 billion. Republicans urged cutting the money because they opposed co-op plans as political handouts to entities traditionally allied with the Democratic party and saw them having little chance of long-term viability.

The ability to offer the lowest-priced option for consumers has been complicated by early startup costs that established commercial insurers do not face, according to leaders of the health cooperatives. For example, co-op plans lack consumer name recognition and must engage in heavy marketing.

“The promise of the co-op being low cost is not necessarily a Year 1 proposition,” said Julia Hutchins, CEO of the Colorado Health Insurance Cooperative, in an interview.

Melville said the fact that the co-op plan premiums fell into the mid-range of premiums is a good sign for the long-term viability of these new plans.

Overall, the co-op plan rate filings have given analysts confidence in their long-term viability. “We’re not seeing them falling behind in any ways that raise any red flags for us,” said Matthew Valeta, a health policy analyst at the Colorado Consumer Health Initiative, in an interview.

One exception is the Vermont Health COOP, which had its license application rejected by the state’s insurance regulator in May due to a range of concerns about its premiums, projected enrollment and organizational details. None of the three other co-op plans still awaiting licensure is expected to face the same fate, VanRiper said. She also noted Vermont’s co-op plan is seeking reconsideration of its application.

Rep. Darrell Issa (R-Calif.), chairman of the House Oversight and Government Reform Committee, issued subpoenas to HHS in June for documents related to approval of the federal funding for many of the cooperatives, and he has requested similar information directly from 13 of the 24 cooperatives.

“It’s not a very productive environment” for cooperatives in Congress, Smith said.