Ky. Health Cooperative, a new kind of insurer, could help hold down rates and reshape the health-care system

By Molly Burchett
Kentucky Health News

FRANKFORT, Ky. -- A little-known but key part of federal health reform created a new kind of health insurance -- a cooperative that is neither public, like Medicare and Medicaid, or run for profit, like traditional insurance companies. And the Kentucky Health Cooperative is offering coverage this week, with the opening of the state health-insurance exchange.

Kentucky is one of 23 states with plans the law designated as Consumer Operated and Oriented, or "co-ops," designed to give for-profit companies more competition and hold down rates. The plans have received more than $2 billion in federal loans to build themselves from scratch, but have been operating largely under the radar.

Janie Miller (Associated Press photo)

"The co-op program is an extremely little known part of the Affordable Care Act," Kentucky Health Cooperative CEO Janie Miller said in an interview with Kentucky Health News. "It's been very difficult to get people to understand what the co-op is and why they should care."

The Co-Op provision was a political compromise in the Affordable Care Act, developed as an alternative to the "public option" of a government-run plan. "It's the closest thing you can probably get to a public option," said Miller. ?We [cooperatives] are created to be the non-profit options in most states? specifically for the uninsured and under-insured. ?

But the co-op could also help all insurance buyers, by pushing private insurers to set premiums lower than they would without non-profit competition. "Since we are non-profit, we don?t have to add a profit margin to our products, so our price should be competitive," Miller said. 

"We believe the addition of the Kentucky Health Cooperative will be positive for Kentucky consumers by bringing more competition to the market," said Ronda Sloan, spokesperson for the state Department of Insurance, which approves premium rates. "While Humana is offering a limited service area, both Anthem and the Kentucky Health Cooperative are offering plans statewide."

Development of the co-op

The creation of this new type of insurance began in Kentucky when Joe Smith of the Kentucky Primary Care Association, a lobby for primary-care clinics, got a call from Beam Partners of Atlanta, a consultant to health plans and cooperatives, offering to help create a co-op. Smith, who spent five years organizing health cooperatives in Alaska before becoming executive director of the Kentucky group, recruited other board members and Miller, who was recently secretary of the state Cabinet for Health and Family Services.

The cooperative was the only applicant in Kentucky for the federal loans. It received $11.9 million in start-up loans and is in line for $46.8 million of reserves from the federal government. The reserve money allows the co-op to meet state requirements for solvency and enter the insurance market.

Miller said the application process was community-driven and required a business plan and an extensive feasibility study estimating how many people the co-op would likely insure. It estimates 31,000 in the first year and 65,000 after 20 years.

"That's about 10 percent of the uninsured market that would be eligible for the exchange and not the Medicaid expansion" under the reform law, to people with incomes up to 138 percent of the federal poverty level. The exchange offers tax credits to make its coverage more affordable.

In return for the federal money, and to promote sustainability and accountability, the co-op must reach specific milestone requirements to receive all of the money from the Center for Consumer Information and Insurance Oversight in the Centers for Medicare and Medicaid Services.

"Is it an uphill battle? Absolutely," Miller said.
The co-op has some limits

The law bars the cooperative from using federal loan funds to for marketing and advertising, but it is required to do education and outreach, such as press releases and community presentations, and it has hired a Louisville public-relations firm, New West, to raise its profile.

"We are finding that a lot of people, especially people who did not have insurance, don't necessarily value having health insurance every month like we do," Miller said. "But they see the value when they need health services . . . so we are doing a lot of education about what the patient protections are and about the new affordability programs" in the law, including the cooperative. Insurance from the co-op can be bought on the state health-benefits exchange, branded as Kynect, directly from the co-op website and from many brokers and agents in Kentucky..

Kentucky Health Cooperative is modeled after other successful cooperatives, such as the Group Health Cooperative of Seattle, which was founded in 1947 and has evolved from a single clinic to an organization that delivers higher-quality, affordable coverage and care to more than 650,000 members, the group's executive director of public policy said at a Co-Op Federal Advisory Board public hearing.

In preparing to launch plans on the Kentucky exchange, Miller said, the cooperative's biggest challenge has been time constraints.  The co-op has outsourced its claims processing and call center, but will have 55 employees when fully staffed by Dec. 1, Miller said. It has partnered with ProCare Rx for prescription benefits.

Since the cooperatuve is new, it had no historical data about specific claims and collections, so it contracted with Milliman, an actuary with access to millions of claims for new carriers entering the market, to ensure that health plans were adjusted for a pool of members whose risks might be higher than usual.

The cooperative's business plan projects that about 75 percent of its sales will cover individuals directly, and 25 percent will cover employees of small businesses.

What's really different?

The cooperative is a non-profit, consumer-governed health plan, where consumers can become engaged and have a say in the health plan's affairs, says Miller. "There's something about health care that says it shouldn't all be for profit."

Smith said the co-op "provides an opportunity for a value-based system that goes beyond the bottom line."

The co-op will be directly responsible to its policyholder-members because it they will govern it. By January 2016, all of its board members will have been elected by co-op members, said Miller. ?Not only that, but if we collect revenues above expenses, that money goes back to our members in the form of better benefits or lower premiums,? she said.

Miller said there's another inherent possibility in the co-op's consumer governance design to engage consumers and educate them. If the ownership is truly educated, the whole design of health care can be shifted from "treat them and street them" to a focus on quality care. Members "can start putting demands on the institution that they own to start being a true health care system. That's the dream, that's the goal," said Smith.

Kentucky, Louisiana, South Carolina and Tennessee are the southern states with cooperatives. Click here for the complete list and funding totals.

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