HHS Sets Rules For Consumer-Controlled Health Plans

New consumer-controlled health insurance plans could get seed money from the government to increase competition – and maybe cut prices — under new rules announced Monday by the Department of Health and Human Services.

The rules would steer a total of $3.8 billion in low-interest loans to groups such as The Evergreen Project in Baltimore, seeking to launch the so-called Consumer Oriented and Operated Plans. The health department hopes at least one “co-op” will launch in each state and anticipates funding a total of 57 around the country.

The strategy is that new health plans run by consumers – most board members would also have to be plan members — would find ways to improve care, rather than boost profits. The new plans, made possible by the seed money, would also compete with established insurers to drive prices down.

The co-ops could “further two of the important goals of the Affordable Care Act, increasing competition and enhancing the voices of consumers in the health care market,” said Steve Larsen, the director the Center for Consumer Information and Insurance Oversight, during a Monday call with reporters to announce the rules.

HHS Sets Rules For Consumer-Controlled Health PlansAaron Sumner via Flickr

The Evergreen Project, named after the coffee shop where its founders held initial meetings, is among a small cadre of groups that are laying the groundwork to launch these nonprofit insurers to care for families and individuals who will be required to buy coverage under the health law — but may be hard pressed to afford it.

Peter Beilenson, a physician and one of the founders, said the group has already raised $315,000 in foundation grants and completed a 16-month feasibility study. The members are awaiting a report from hired actuaries before applying for the loans to move forward. The key factor in any decision: Could the co-op really cost less than other insurers?

“We actually think we can bring it in” — meaning the plan’s premium prices — “under Aetna and Coventry,” said Beilenson, who is also the county health officer in nearby Howard County, Md. He plans to hire salaried doctors to manage patients as a strategy for reducing costs.

The co-op concept was injected into the congressional health care debate in 2009 as an alternative to the ill-fated “public option,” the term for a government-run insurance service favored by progressives but scorned by the insurance industry and many lawmakers in both parties.

Echoing the language of the Affordable Care Act, which was signed into law in March 2010, the rule bans existing insurers from getting a cut of the grant money. It also prevents any government entities — such as counties and state agencies — from using the money to launch co-ops.

“It’s for new nonprofit plans and the funding is not available to existing insurers,” said Richard Popper, director of the Office of Insurance Programs in CCIIO, dispelling any possibility of a “public option” look-alike.

But, that and other restrictions, including a requirement that the plans serve mainly individual customers and small businesses, could be the undoing of the co-op strategy, say skeptics such as Robert Laszewski, an insurance industry consultant.

“They’re pointing people at the most problematic part of the market where this is the most risk, and they’re saying it can’t be people in the business who have that expertise,” Laszewski said.

Two-thirds of a co-ops’ membership would consist of individual and small group customers. Both markets tend to be more expensive than the policies extended to workers at large employers. Larsen said HHS had concluded that small businesses pay an average of 18 percent more than their bigger counterparts to insure workers.

One goal of the new plans would be help drive those costs down. Rather than stockpiling earnings in reserves or collecting profits, insurers that accept the new grants would be required to use any extra revenue to reduce premiums, improve the quality of care or expand benefits.

Otherwise, Popper said, the co-op insurers would be held to the same requirements as other insurers in the state. State regulators have to license them, and, critically, make sure they have enough money on hand to cover any unexpected surge in claims, assuring their solvency.

The federal loans would help nonprofits launch their health plans, as well as help keep their coffers full enough to clear regulatory hurdles. The plans would have up to 15 years to repay the loans and interest. The proposed interest rate is tied to the average rate of interest for a certain set of Treasury securities. In June, that rate was 2.38 percent. Applicants will be able to apply beginning this week.

But co-ops could face another hurdle as they seek approval from their state regulators, said Sabrina Corlette, a professor at the Health Policy Institute at Georgetown University. Because most regulators count repayable loans as a debt, it might not help meet state solvency requirements for health plans.

Some nonprofits that hoped to set up co-ops “probably got a dose of cold water in terms of the cash they’d have to put up” when they approached regulators, she said.