Obamacare created 22 new health insurance plans. Can they succeed?

September 11, 2013

Welcome to Health Reform Watch, Sarah Kliff’s regular look at how the Affordable Care Act is changing the American health-care system — and being changed by it. You can reach Sarah with questions, comments and suggestions here. Check back every Monday, Wednesday and Friday afternoon for the latest edition, and read previous columns here.

Days until marketplaces launch: 20.

You know that scene from "Raiders of the Lost Ark" where Harrison Ford outruns a massive boulder hurdling at him at top speeds in a cave... and then finds an army waiting for him right outside?

"That's October 1," says John Morrison, who runs the National Alliance of State Health Co-Ops, a group of 22 health insurance plans that will launch alongside Obamacare's state marketplaces. "We've cleared a lot of hurdles and dodged a lot of bullets. And we're ready to move forward."

The  Consumer Operated and Oriented Plans, or Co-Ops, are a small part of the health care law that could have big implications for its success. Nonprofits in 24 states have received over $2 billion in federal loans to essentially start new health insurance products from scratch. And the health care observers I talk to think that these plans have the potential to upend the health insurance market -- or end up as the next Solyndra.

Right now, its too early to tell which direction they'll go.

The co-ops were the brainchild of former senator Kent Conrad of North Dakota. They were meant to offer something of a replacement for the public option when it was clear a government-run health plan wouldn't have the political support to move forward. The co-ops would all be nonprofit health plans that, in theory, would push their private competitors to lower their insurance rates. And they would get start-up loans from the federal government, significantly lowering the hurdle to enter the insurance market.

Twenty-five co-ops received grants from the federal government before Congress cut off funding for the program as part of a larger deal to avert the fiscal cliff in January. Come October, 22 of those plans will be selling on the marketplaces. Ohio's plan has not yet received certification to sell from its state insurance department, and Vermont's was rejected by a state agency, which questioned its ability to repay the government loans.

I met this morning with a few of the co-op executives, who appear confident that they're having a significant impact on their state insurance marketplaces. In Maine, for example, co-op Maine Community Health Options is one of just two plans selling on the marketplace. Without it, the only option would be Anthem Blue Cross Maine.

"Are rates are lower in almost every product offering," Maine Community Health Options executive Kevin Lewis says.

New Mexico's co-op believes its presence has lead to lower rates for other health plans. Executive Martin Hickey says that, after competitors saw his plan's rates, they ultimately lowered the prices that they would charge consumers in subsequent filings with the New Mexico Public Regulation Commission. "We started off as the lowest," Hickey says, "And some others dropped their rates by as much as 30 percent."

Low prices can attract consumers, but they also come with a risk: If the premiums that subscribers pay in aren't enough to cover the health services they need, it will be difficult for these co-ops to pay their loans back to the federal government. And co-op leaders readily acknowledge that, going forward, setting prices is probably the most difficult part of their job.

Usually, health insurance plans look at data from previous years to figure out what to charge consumers. They crunch numbers on how many  people got sick and what kind of health care they needed and use that to forecast upcoming costs.

But these co-ops are brand-new. They can rely on general medical trends and hire actuaries, but they don't have their own premium collection data to fall back on.

"We're pricing without having the experience," says Hickey. "We do have good data, but it's an informed guess. We don't know the risk of the population."

Another element that makes the co-ops unique is the type of customers they hope to entice. While insurers have typically tried to lure in the healthiest subscribers, who would file the fewest claims, co-ops generally seek out the riskier, sicker people. They have a good reason: The health care law includes something called risk adjustment, which requires the health plans with super healthy subscribers to transfer some funds to those that have really sick customers, in other words, the plans that the co-ops might use.

If the co-ops can do a great job managing the care of the sickly – making sure they take their medications, receive preventive care and dodge hospital trips – the thinking is that these types of customers could actually be a good investment.

"The only way you can make money is to take people at high risk and reduce that risk," Hickey, from New Mexico, says. "The old insurance model was to avoid risk. The new rule is identify risk, intervene and help them out."

This strategy isn't without its own pitfalls: If co-ops do focus on the least healthy customers and aren't able to get their health costs down, that leaves them with very significant medical claims to cover.

Now that we're three weeks out from the marketplaces launch, co-ops have their strategies locked into place. And we're about to learn whether their strategy is a big hit, or headed for big trouble.

KLIFF NOTES: Top health policy reads from around the Web.

The Obama administration says its finished building the health law data hub. "Obama administration officials, facing criticism that they are behind schedule in implementing the president’s health-care law, said Tuesday that they have finished a major piece of the technology that will help millions of Americans sign up for insurance this fall." Sandhya Somashekhar in The Washington Post

California's marketplace will launch on time. "California said it is planning for a full launch of its Obamacare online health insurance exchange on October 1, after testing its functionality. Last month, the state said it was considering a soft launch of the exchange if tests showed it was not ready for wide public access. But tests of the system last week were encouraging, said Dana Howard, deputy director of communications for the Covered California exchange." Lewis Krauskopf for Reuters

Correction: This post incorrectly stated the number of co-op plans. There are 22 plans that are operating in 23 states.

 

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