Some argue that exchanges should act like large employers, who often actively negotiate contracts with health plans in an effort to get the best possible price and quality. Others argue that exchanges should be passive conduits of information between health plans and consumers — a virtual “Yellow Pages.” In fact, while some states like California and Massachusetts have embraced active purchasing by allowing their exchange to selectively contract with health plans, the recently passed Colorado health benefits exchange expressly prohibits such activities, as do other state measures that include similar language.

It’s not too much of a stretch to guess who’s pushing what vision of an exchange. Consumer groups and, often, small business owners, would prefer an exchange that more actively manages competition and uses its ability to aggregate individuals and small groups to demand better prices and higher quality. On the other side sit the insurance industry and free market conservatives, who would rather see an exchange let any willing insurance company participate and offer an unlimited number of products, allowing a wider range of choices for exchange enrollees.

So, which approach should a state take? My colleagues at the Georgetown University Health Policy Institute and I recently partnered with the National Academy of Social Insurance to investigate this .

To some extent the federal law decides the issue for states. While it gives them considerable flexibility in operating exchanges, it requires exchanges to do a lot more than just post on a website every health plan that comes knocking.

Only “qualified” health plans can participate — meaning they have to be state licensed, provide a minimum level of coverage, and meet standards for quality and transparency. And the health overhaul is clear that an exchange must be allowed to make a subjective judgment about whether a plan’s participation is “in the interests” of consumers and small business owners. An exchange also must have the ability to certify, re-certify and de-certify plans if they don’t meet minimum quality and affordability standards. This means that Colorado’s bill could be out of compliance with the federal law, if it’s implemented in a way that ties the exchange’s hands.

But, for states that want their exchanges to be active purchasers, a number of environmental factors will prove challenging.

First and foremost, there simply may not be a sufficient number of health plans that are able and willing to participate. An exchange can’t be a selective contractor if it only has one or two plans willing to contract with it. Unfortunately, though, today, nearly all health insurance markets in the U.S. are highly concentrated, and in 48 percent of markets, just one insurer holds at least half of the market.

Second, exchanges need to enroll a critical mass of individuals and small businesses for which health plans will want to compete. And even though the exchange will be the exclusive source of coverage for most low- and moderate-income consumers, in many states these folks will represent a relatively small share of the total commercial market. As a result, the exchange may have little real leverage to be a tough negotiator. And, regardless of size, the risk profile of exchange enrollees will be critical — past experience with exchanges has shown that if they attract higher risk enrollees compared to the outside market, health plans will flee. This will be a particular problem in states that allow the rules and regulations for the market outside exchanges to be less strict than the rules inside.

Third, effective active purchasing can be resource intensive. To do it well requires sitting down with health plans, one-on-one, early and often to discuss goals, priorities and requirements for participation. It requires an experienced staff, funds to conduct market research and ongoing outreach to stakeholders. It also requires a leadership that has expertise but is free from conflicts of interest. Yet many states are debating exchange bills that would allow multiple insurers to serve on the board of directors. And many state legislatures may not be willing to authorize an operating budget that would support a staff with the necessary skills and market experience.

One critical question — whether the exchange could negotiate a better bargain than consumers could get in the outside market — will likely prove challenging in many states. The exchange will not be the exclusive distribution channel for insurance products, meaning that most health insurance companies can continue to market their products in the outside market. And because the health law requires that prices for the same products be the same inside and outside the exchange, it means that any price discount negotiated by the exchange would have to be implemented in the outside market as well. For most carriers, the exchange won’t be a big enough book of business to justify such across-the-board rate reductions. More importantly, however, negotiating price discounts year-to-year with carriers does little to tackle the long-term problem for consumers and small businesses: the runaway growth in the costs of health care.

So how can an exchange help deliver more affordable, higher quality health insurance coverage to enrollees? The good news is that the health law gives states considerable flexibility to pursue a wide range of strategies — strategies that can be tailored to local conditions. For example, even in concentrated insurance markets, exchanges may want to limit the number of products each company can offer, and standardize cost-sharing so that consumers can make apples-to-apples comparisons more easily. There’s significant research showing that too many product options can confuse consumers and lead them to choose plans that don’t best meet their needs.

Exchanges could also partner with other large purchasers in the state — such as the state Medicaid agency, the state employee benefits purchasing agency, or large employer coalitions to push plans on delivery and payment system reforms that promote the delivery of higher quality, more efficient health care services.

Exchanges might want to pursue a strategy of recruiting new insurance carriers to enter the market. The exchange in Massachusetts has successfully recruited two new commercial carriers — the first new market entrants in the state for decades.

Last but most definitely not least, exchanges will have important new tools to help change the way consumers shop for and buy insurance. New transparency requirements and web portals that allow for a comparative display of information can encourage consumers to select high value, efficient health plans. For example, exchanges can give special designations (i.e., “Top Value” or “Exchange Select”) to plans that submit the lowest priced bids, offer consistently reasonable rates, or score high on quality and consumer satisfaction metrics.

These activities, while they might not fall under some traditional definitions of “active purchasing,” may hold the greatest potential to help provide consumers and small businesses with higher-value coverage. On the other hand, where a state decides its exchange will be “passive,” or a simple conduit of information — the virtual Yellow Pages — it’s hard to see how it adds value.

Sabrina Corlette is a research professor at The Georgetown University Health Policy Institute.

This <a target="_blank" href="/insurance/061511corlette/">article</a&gt; first appeared on <a target="_blank" href="">KFF Health News</a> and is republished here under a <a target="_blank" href=" Commons Attribution-NonCommercial-NoDerivatives 4.0 International License</a>.<img src="/wp-content/uploads/sites/8/2023/04/kffhealthnews-icon.png?w=150&quot; style="width:1em;height:1em;margin-left:10px;">

But is that really true? Is the Massachusetts exchange — they call it the “Connector” — a heavy-handed arm of government, dictating prices and imposing continual mandates on health plans? And is the Utah exchange a pure free market? My colleagues and I at Georgetown University’s Health Policy Institute recently and found that the reality is far more nuanced.

Yet many state policymakers seem to believe they have to make an either-or choice: the Massachusetts road or the Utah road. This kind of simplified contrast (largely fueled by those with strong financial interests at stake) does a disservice to the individuals and small business owners that could benefit from a well-designed and sustainable exchange. The truth is states can and should borrow from both models to develop an approach that works for their own citizens.

Certainly, the Utah and Massachusetts exchanges were launched with very different visions. The Utah model was designed to enhance the sharing of information among employers, employees, insurers and brokers, and to enhance predictability for employers via a “defined contribution” benefit. And it is open only to small employers, not to uninsured individuals seeking coverage. In Massachusetts, by contrast, the Connector was seen as a key gateway to universal or near-universal coverage for its residents.

In some ways, the states live up to these stereotypes.

The Connector has been very effective in using its clout in its subsidized market to keep premium increases down — they’ve been held under 5 percent, or about half the rate of growth in the outside market. And, in response to feedback from customers that the number of product choices it offered was overwhelming, the Connector has required considerable standardization. Participating plans currently can offer no more than one gold, three silver and three bronze products. The color-coding, of course, signals the level of coverage the plan will provide.

Utah’s exchange takes any willing plan, so long as that plan meets some minimal requirements. In 2010, there were 146 plan options for 436 enrollees. The multitude of choices is so great, in fact, that 55 percent of respondents in a 2009 survey of employers who registered for the exchange but did not ultimately enroll cited the process for choosing a health plan as the reason they walked away.

But in other ways the exchanges break down the stereotypes.

For example, the Massachusetts Connector has yet to turn away a plan that expressed a wish to participate. And it doesn’t dictate prices. For its unsubsidized population, including small businesses, it does little to negotiate premium discounts. It simply doesn’t have the leverage to do so. But it does use web-based decision tools to help consumers find the best value plan. Again and again we found evidence that the Connector was using free-market principles — not heavy-handed regulation — to generate better prices and quality for consumers.

 In Utah, after the exchange struggled early on because of high prices, low enrollment and the limited number of available plans, the state enacted new regulations that require the same rating practices for plans inside and outside the exchange. These regulations also limit rating factors that plans can use to age, family composition and geographic area. And they moved to penalize insurers who do not participate in the exchange by barring them from joining later. In other words, to save its exchange, the state worked quickly to impose regulatory solutions.

Because there’s a competing insurance market outside both exchanges, both states have had to work hard to offer a mix of health plans that consumers and small businesses know and want, at prices they can afford. As Jon Kingsdale, the former executive director of the Connector puts it: the exchange is like an insurance “store,” it sells health plans. And without the enticement of subsidies, the store has to offer an attractive mix of products, or it won’t attract customers. In both states, consumers want to see plans they’re familiar with, that have a good reputation for quality and customer service.

Both models have shown that they can be effective market innovators, using web-based decision-support tools to help consumers and small-business owners shop for and purchase health insurance. And over time, empowering consumers and business owners in this way could prove to be one of our most effective tools for lowering health care spending.

Utah hopes to move in this direction by encouraging employees to choose high-deductible health plans that will give them “skin in the game” and make them more cost conscious before seeking health care services. And Massachusetts is doing this by giving consumers confidence that they’re choosing among quality products. This effort has resulted in lower cost plans gaining market share against bigger, “brand-name” plans in the commonwealth.

In the end, perhaps the most important element for both exchanges is the commitment of their political leadership to their long-term success and sustainability. In particular, both states have demonstrated a willingness to be flexible and pragmatic in making the legal and administrative choices necessary to innovate, adjust to market changes and respond to customer feedback. As other states begin the hard work of creating their own exchanges, they’d be wise to see the Utah and Massachusetts models — not as ideological “bookends” but rather as entities that must continually evolve to meet the needs of real people.

This <a target="_blank" href="/insurance/040611corlette/">article</a&gt; first appeared on <a target="_blank" href="">KFF Health News</a> and is republished here under a <a target="_blank" href=" Commons Attribution-NonCommercial-NoDerivatives 4.0 International License</a>.<img src="/wp-content/uploads/sites/8/2023/04/kffhealthnews-icon.png?w=150&quot; style="width:1em;height:1em;margin-left:10px;">

Don’t remember the co-ops? They were a late addition to the Senate health care bill, developed by Sen. Kent Conrad, D-N.D., during the reform debate, as an alternative to the public plan option supported by progressives but vehemently opposed by conservatives and most health industry stakeholders. Senate leaders recognized that including the public plan option in the final health reform bill put the fragile pro-reform coalition at risk, and tasked Conrad with devising an alternative.

As  Conrad  at the time: “The co-op structure came to mind because it seems to fulfill some of the desires of both sides. [For] those who want a public option because they hope to have a competitive model able to take on the private insurance companies, a co-op model has attraction.  And for those against a public option because they fear government control, the co-op structure has some appeal because it’s not government control.”

While the resulting proposal was a smart political device, put forward at a critical juncture to advance health care reform in the Senate, it remains to be seen whether it can be turned into something meaningful for consumers. If  is any guide, most of these plans will fail because they can’t stay adequately capitalized or maintain sufficient membership growth. And if they prove to be successful, there’s the risk of “Trojan Horses” — plans that start out as member-driven non-profits but soon convert to business-as-usual commercial carriers.

Essentially the co-op provision requires the Department of Health and Human Services to pay up to $6 billion in grants and loans for the creation of state-licensed nonprofit health plans, beginning in 2013. The legislative outlines for the program are rather vague, with only a few real requirements designed to make them truly “consumer oriented,”such as:

–        They must be state-based nonprofits, and any profits generated must go to the benefit of members.

–        They must be governed by majority vote of members, and any governing documents must incorporate ethics and conflict-of-interest standards against insurance industry involvement.

–        HHS must, by regulation, ensure that the organization operates with a strong consumer focus.

–        Any entity that was an insurance company as of July 2009 is not eligible to participate.

In addition, the statute makes clear that there has to be a “level playing field” between co-ops and commercial carriers, meaning these new market entrants must abide by all the same rules and regulations that other plans do.

Unfortunately, the law forces these new plans to compete for market share with one hand tied behind their backs. Setting up a new health plan in any market is extremely difficult. In addition to the significant capitalization needs, plans have a chicken-and-egg problem. They need sufficient enrollees to entice providers to participate and make price concessions. But most people and businesses don’t want to sign up for a plan unless it’s got an adequate provider network. It’s one reason why so many states are dominated by one or two big carriers, with little real competition.

Yet instead of giving co-ops every possible tool to succeed, the law does a number of things to hold them back, such as:

–        Prohibiting the plans from using any federal funds for marketing.

–        Requiring them  to pay back federal loans within five years and the grants within 15 years, which, for many plans, may not be sufficient time to generate the necessary revenue.

–        Limiting their business to the individual and small group markets, making it more difficult for them to generate critical mass through large employer groups.

–        Instructing the HHS secretary to ensure that the $6 billion for grants and loans is divided up so that at least one co-op will be located in each state. While this makes sense politically, it doesn’t allow HHS to be strategic in its allocation of grants, ensuring that only the most promising plans have the capitalization they need to effectively compete.

Should we just write these co-ops off? Call them a political device that was perhaps useful at the time, but will, in the end, be a $6 billion boondoggle? Call me a Pollyanna but I’m not quite yet willing to do that.

¹ó¾±°ù²õ³Ù,Ìý²¹²Ô , comprised of experienced experts who know what it takes to get an insurance company off the ground and sustain it over time, has been assembled to guide HHS in writing regulations and setting parameters for the program. And, as they work on this task, there are successful models, such as Group Health of Puget Sound and Colorado Choice Health Plans, that they can look to for ideas. After all, it’s possible that, with strong local support, competent leadership, and sufficient capitalization, theses examples can be replicated in at least some markets.

In addition, because they’re starting from scratch, these new co-op plans may be able to be much more innovative with delivery systems and reimbursement strategies than their competitors. For example, they could be built as accountable care organizations or a network of medical homes.

At a minimum, it will take a serious and sustained effort to get co-ops off the ground and viable as an affordable alternative for consumers and small business owners. But, across the country, policymakers, business leaders and politicians of both parties are increasingly recognizing that many insurance markets are too highly concentrated. While there is wide divergence on solutions to this problem, co-ops could be an appealing middle-ground approach, leading to greater investment in their success.

Corlette, a research professor and director of health insurance studies at Georgetown University Health Policy Institute, testified Jan. 13 at the meeting of the HHS Advisory Board for Consumer Operated and Oriented Plan Program.

This <a target="_blank" href="/insurance/012511corlette/">article</a&gt; first appeared on <a target="_blank" href="">KFF Health News</a> and is republished here under a <a target="_blank" href=" Commons Attribution-NonCommercial-NoDerivatives 4.0 International License</a>.<img src="/wp-content/uploads/sites/8/2023/04/kffhealthnews-icon.png?w=150&quot; style="width:1em;height:1em;margin-left:10px;">

Some argue that exchanges should act like large employers, who often actively negotiate contracts with health plans in an effort to get the best possible price and quality. Others argue that exchanges should be passive conduits of information between health plans and consumers — a virtual “Yellow Pages.” In fact, while some states like California and Massachusetts have embraced active purchasing by allowing their exchange to selectively contract with health plans, the recently passed Colorado health benefits exchange expressly prohibits such activities, as do other state measures that include similar language.

It’s not too much of a stretch to guess who’s pushing what vision of an exchange. Consumer groups and, often, small business owners, would prefer an exchange that more actively manages competition and uses its ability to aggregate individuals and small groups to demand better prices and higher quality. On the other side sit the insurance industry and free market conservatives, who would rather see an exchange let any willing insurance company participate and offer an unlimited number of products, allowing a wider range of choices for exchange enrollees.

So, which approach should a state take? My colleagues at the Georgetown University Health Policy Institute and I recently partnered with the National Academy of Social Insurance to investigate this .

To some extent the federal law decides the issue for states. While it gives them considerable flexibility in operating exchanges, it requires exchanges to do a lot more than just post on a website every health plan that comes knocking.

Only “qualified” health plans can participate — meaning they have to be state licensed, provide a minimum level of coverage, and meet standards for quality and transparency. And the health overhaul is clear that an exchange must be allowed to make a subjective judgment about whether a plan’s participation is “in the interests” of consumers and small business owners. An exchange also must have the ability to certify, re-certify and de-certify plans if they don’t meet minimum quality and affordability standards. This means that Colorado’s bill could be out of compliance with the federal law, if it’s implemented in a way that ties the exchange’s hands.

But, for states that want their exchanges to be active purchasers, a number of environmental factors will prove challenging.

First and foremost, there simply may not be a sufficient number of health plans that are able and willing to participate. An exchange can’t be a selective contractor if it only has one or two plans willing to contract with it. Unfortunately, though, today, nearly all health insurance markets in the U.S. are highly concentrated, and in 48 percent of markets, just one insurer holds at least half of the market.

Second, exchanges need to enroll a critical mass of individuals and small businesses for which health plans will want to compete. And even though the exchange will be the exclusive source of coverage for most low- and moderate-income consumers, in many states these folks will represent a relatively small share of the total commercial market. As a result, the exchange may have little real leverage to be a tough negotiator. And, regardless of size, the risk profile of exchange enrollees will be critical — past experience with exchanges has shown that if they attract higher risk enrollees compared to the outside market, health plans will flee. This will be a particular problem in states that allow the rules and regulations for the market outside exchanges to be less strict than the rules inside.

Third, effective active purchasing can be resource intensive. To do it well requires sitting down with health plans, one-on-one, early and often to discuss goals, priorities and requirements for participation. It requires an experienced staff, funds to conduct market research and ongoing outreach to stakeholders. It also requires a leadership that has expertise but is free from conflicts of interest. Yet many states are debating exchange bills that would allow multiple insurers to serve on the board of directors. And many state legislatures may not be willing to authorize an operating budget that would support a staff with the necessary skills and market experience.

One critical question — whether the exchange could negotiate a better bargain than consumers could get in the outside market — will likely prove challenging in many states. The exchange will not be the exclusive distribution channel for insurance products, meaning that most health insurance companies can continue to market their products in the outside market. And because the health law requires that prices for the same products be the same inside and outside the exchange, it means that any price discount negotiated by the exchange would have to be implemented in the outside market as well. For most carriers, the exchange won’t be a big enough book of business to justify such across-the-board rate reductions. More importantly, however, negotiating price discounts year-to-year with carriers does little to tackle the long-term problem for consumers and small businesses: the runaway growth in the costs of health care.

So how can an exchange help deliver more affordable, higher quality health insurance coverage to enrollees? The good news is that the health law gives states considerable flexibility to pursue a wide range of strategies — strategies that can be tailored to local conditions. For example, even in concentrated insurance markets, exchanges may want to limit the number of products each company can offer, and standardize cost-sharing so that consumers can make apples-to-apples comparisons more easily. There’s significant research showing that too many product options can confuse consumers and lead them to choose plans that don’t best meet their needs.

Exchanges could also partner with other large purchasers in the state — such as the state Medicaid agency, the state employee benefits purchasing agency, or large employer coalitions to push plans on delivery and payment system reforms that promote the delivery of higher quality, more efficient health care services.

Exchanges might want to pursue a strategy of recruiting new insurance carriers to enter the market. The exchange in Massachusetts has successfully recruited two new commercial carriers — the first new market entrants in the state for decades.

Last but most definitely not least, exchanges will have important new tools to help change the way consumers shop for and buy insurance. New transparency requirements and web portals that allow for a comparative display of information can encourage consumers to select high value, efficient health plans. For example, exchanges can give special designations (i.e., “Top Value” or “Exchange Select”) to plans that submit the lowest priced bids, offer consistently reasonable rates, or score high on quality and consumer satisfaction metrics.

These activities, while they might not fall under some traditional definitions of “active purchasing,” may hold the greatest potential to help provide consumers and small businesses with higher-value coverage. On the other hand, where a state decides its exchange will be “passive,” or a simple conduit of information — the virtual Yellow Pages — it’s hard to see how it adds value.

Sabrina Corlette is a research professor at The Georgetown University Health Policy Institute.

This <a target="_blank" href="/insurance/061511corlette/">article</a&gt; first appeared on <a target="_blank" href="">KFF Health News</a> and is republished here under a <a target="_blank" href=" Commons Attribution-NonCommercial-NoDerivatives 4.0 International License</a>.<img src="/wp-content/uploads/sites/8/2023/04/kffhealthnews-icon.png?w=150&quot; style="width:1em;height:1em;margin-left:10px;">

But is that really true? Is the Massachusetts exchange — they call it the “Connector” — a heavy-handed arm of government, dictating prices and imposing continual mandates on health plans? And is the Utah exchange a pure free market? My colleagues and I at Georgetown University’s Health Policy Institute recently and found that the reality is far more nuanced.

Yet many state policymakers seem to believe they have to make an either-or choice: the Massachusetts road or the Utah road. This kind of simplified contrast (largely fueled by those with strong financial interests at stake) does a disservice to the individuals and small business owners that could benefit from a well-designed and sustainable exchange. The truth is states can and should borrow from both models to develop an approach that works for their own citizens.

Certainly, the Utah and Massachusetts exchanges were launched with very different visions. The Utah model was designed to enhance the sharing of information among employers, employees, insurers and brokers, and to enhance predictability for employers via a “defined contribution” benefit. And it is open only to small employers, not to uninsured individuals seeking coverage. In Massachusetts, by contrast, the Connector was seen as a key gateway to universal or near-universal coverage for its residents.

In some ways, the states live up to these stereotypes.

The Connector has been very effective in using its clout in its subsidized market to keep premium increases down — they’ve been held under 5 percent, or about half the rate of growth in the outside market. And, in response to feedback from customers that the number of product choices it offered was overwhelming, the Connector has required considerable standardization. Participating plans currently can offer no more than one gold, three silver and three bronze products. The color-coding, of course, signals the level of coverage the plan will provide.

Utah’s exchange takes any willing plan, so long as that plan meets some minimal requirements. In 2010, there were 146 plan options for 436 enrollees. The multitude of choices is so great, in fact, that 55 percent of respondents in a 2009 survey of employers who registered for the exchange but did not ultimately enroll cited the process for choosing a health plan as the reason they walked away.

But in other ways the exchanges break down the stereotypes.

For example, the Massachusetts Connector has yet to turn away a plan that expressed a wish to participate. And it doesn’t dictate prices. For its unsubsidized population, including small businesses, it does little to negotiate premium discounts. It simply doesn’t have the leverage to do so. But it does use web-based decision tools to help consumers find the best value plan. Again and again we found evidence that the Connector was using free-market principles — not heavy-handed regulation — to generate better prices and quality for consumers.

 In Utah, after the exchange struggled early on because of high prices, low enrollment and the limited number of available plans, the state enacted new regulations that require the same rating practices for plans inside and outside the exchange. These regulations also limit rating factors that plans can use to age, family composition and geographic area. And they moved to penalize insurers who do not participate in the exchange by barring them from joining later. In other words, to save its exchange, the state worked quickly to impose regulatory solutions.

Because there’s a competing insurance market outside both exchanges, both states have had to work hard to offer a mix of health plans that consumers and small businesses know and want, at prices they can afford. As Jon Kingsdale, the former executive director of the Connector puts it: the exchange is like an insurance “store,” it sells health plans. And without the enticement of subsidies, the store has to offer an attractive mix of products, or it won’t attract customers. In both states, consumers want to see plans they’re familiar with, that have a good reputation for quality and customer service.

Both models have shown that they can be effective market innovators, using web-based decision-support tools to help consumers and small-business owners shop for and purchase health insurance. And over time, empowering consumers and business owners in this way could prove to be one of our most effective tools for lowering health care spending.

Utah hopes to move in this direction by encouraging employees to choose high-deductible health plans that will give them “skin in the game” and make them more cost conscious before seeking health care services. And Massachusetts is doing this by giving consumers confidence that they’re choosing among quality products. This effort has resulted in lower cost plans gaining market share against bigger, “brand-name” plans in the commonwealth.

In the end, perhaps the most important element for both exchanges is the commitment of their political leadership to their long-term success and sustainability. In particular, both states have demonstrated a willingness to be flexible and pragmatic in making the legal and administrative choices necessary to innovate, adjust to market changes and respond to customer feedback. As other states begin the hard work of creating their own exchanges, they’d be wise to see the Utah and Massachusetts models — not as ideological “bookends” but rather as entities that must continually evolve to meet the needs of real people.

This <a target="_blank" href="/insurance/040611corlette/">article</a&gt; first appeared on <a target="_blank" href="">KFF Health News</a> and is republished here under a <a target="_blank" href=" Commons Attribution-NonCommercial-NoDerivatives 4.0 International License</a>.<img src="/wp-content/uploads/sites/8/2023/04/kffhealthnews-icon.png?w=150&quot; style="width:1em;height:1em;margin-left:10px;">

Don’t remember the co-ops? They were a late addition to the Senate health care bill, developed by Sen. Kent Conrad, D-N.D., during the reform debate, as an alternative to the public plan option supported by progressives but vehemently opposed by conservatives and most health industry stakeholders. Senate leaders recognized that including the public plan option in the final health reform bill put the fragile pro-reform coalition at risk, and tasked Conrad with devising an alternative.

As  Conrad  at the time: “The co-op structure came to mind because it seems to fulfill some of the desires of both sides. [For] those who want a public option because they hope to have a competitive model able to take on the private insurance companies, a co-op model has attraction.  And for those against a public option because they fear government control, the co-op structure has some appeal because it’s not government control.”

While the resulting proposal was a smart political device, put forward at a critical juncture to advance health care reform in the Senate, it remains to be seen whether it can be turned into something meaningful for consumers. If  is any guide, most of these plans will fail because they can’t stay adequately capitalized or maintain sufficient membership growth. And if they prove to be successful, there’s the risk of “Trojan Horses” — plans that start out as member-driven non-profits but soon convert to business-as-usual commercial carriers.

Essentially the co-op provision requires the Department of Health and Human Services to pay up to $6 billion in grants and loans for the creation of state-licensed nonprofit health plans, beginning in 2013. The legislative outlines for the program are rather vague, with only a few real requirements designed to make them truly “consumer oriented,”such as:

–        They must be state-based nonprofits, and any profits generated must go to the benefit of members.

–        They must be governed by majority vote of members, and any governing documents must incorporate ethics and conflict-of-interest standards against insurance industry involvement.

–        HHS must, by regulation, ensure that the organization operates with a strong consumer focus.

–        Any entity that was an insurance company as of July 2009 is not eligible to participate.

In addition, the statute makes clear that there has to be a “level playing field” between co-ops and commercial carriers, meaning these new market entrants must abide by all the same rules and regulations that other plans do.

Unfortunately, the law forces these new plans to compete for market share with one hand tied behind their backs. Setting up a new health plan in any market is extremely difficult. In addition to the significant capitalization needs, plans have a chicken-and-egg problem. They need sufficient enrollees to entice providers to participate and make price concessions. But most people and businesses don’t want to sign up for a plan unless it’s got an adequate provider network. It’s one reason why so many states are dominated by one or two big carriers, with little real competition.

Yet instead of giving co-ops every possible tool to succeed, the law does a number of things to hold them back, such as:

–        Prohibiting the plans from using any federal funds for marketing.

–        Requiring them  to pay back federal loans within five years and the grants within 15 years, which, for many plans, may not be sufficient time to generate the necessary revenue.

–        Limiting their business to the individual and small group markets, making it more difficult for them to generate critical mass through large employer groups.

–        Instructing the HHS secretary to ensure that the $6 billion for grants and loans is divided up so that at least one co-op will be located in each state. While this makes sense politically, it doesn’t allow HHS to be strategic in its allocation of grants, ensuring that only the most promising plans have the capitalization they need to effectively compete.

Should we just write these co-ops off? Call them a political device that was perhaps useful at the time, but will, in the end, be a $6 billion boondoggle? Call me a Pollyanna but I’m not quite yet willing to do that.

¹ó¾±°ù²õ³Ù,Ìý²¹²Ô , comprised of experienced experts who know what it takes to get an insurance company off the ground and sustain it over time, has been assembled to guide HHS in writing regulations and setting parameters for the program. And, as they work on this task, there are successful models, such as Group Health of Puget Sound and Colorado Choice Health Plans, that they can look to for ideas. After all, it’s possible that, with strong local support, competent leadership, and sufficient capitalization, theses examples can be replicated in at least some markets.

In addition, because they’re starting from scratch, these new co-op plans may be able to be much more innovative with delivery systems and reimbursement strategies than their competitors. For example, they could be built as accountable care organizations or a network of medical homes.

At a minimum, it will take a serious and sustained effort to get co-ops off the ground and viable as an affordable alternative for consumers and small business owners. But, across the country, policymakers, business leaders and politicians of both parties are increasingly recognizing that many insurance markets are too highly concentrated. While there is wide divergence on solutions to this problem, co-ops could be an appealing middle-ground approach, leading to greater investment in their success.

Corlette, a research professor and director of health insurance studies at Georgetown University Health Policy Institute, testified Jan. 13 at the meeting of the HHS Advisory Board for Consumer Operated and Oriented Plan Program.

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