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CO-Ops, or Consumer Operated and Oriented Plans, were created under Section 1322 of the Affordable Care Act. The federal government has awarded nearly $2 billion for the creation of CO-OPs in 24 states. This post presents details about the CO-OP program and discusses various aspects of its implementation.

Understanding the Need for CO-OPs
From October 2013 onward, online health insurance marketplaces in the form of health insurance exchanges will allow people to purchase health insurance plans that will become effective in January2014. However, providing affordable coverage to everyone, as directed by ACA, is problematic. For instance, some state exchanges might witness the presence of very few insurers or be at risk of being monopolized by the bigger, more established health insurance brands. To ensure that fair competition is encouraged and premiums are kept at their competitive best, Consumer Operated and Oriented Plans, aka CO-Ops, will offer health coverage.

Tracing Creation of CO-OPs
The formation of CO-OPs can be attributed to heavy lobbying for a public health insurance option. When public opinion was being sought for changes that should be introduced as a part of the Affordable Care Act, many policymakers wanted the creation of a single, nationwide public health insurance program. This was something akin to Medicare but without any age-based limitations. This health insurance option could have competed on the exchanges, against the health insurance plans sold by private organizations. However, this proposal was not accepted in its entirety. Instead of creating a single, national health insurance program, a somewhat compromised solution surfaced in the form of CO-OPs. Some CO-OPs that have already gained approval include:
•    Healthy CT—sponsored by the Connecticut State Medical Society (CSMS), this is an association of providers that will cater to local communities via medical homes.
•    Evergreen Health Cooperative—intends to offer coverage in Maryland with premiums much lower than plans offered by traditional health insurance companies.
•    Minutemen Health—sponsored by hospital associations in Massachusetts, this CO-OP will start by offering coverage in central and eastern Massachusetts and soon spread across the state.

Are CO-Ops Entirely New?
The healthcare sector is not new to cooperatives like CO-OPs. In fact, CO-OPs can be traced back to 1929. The Group Health Cooperative, founded in 1947, is very popular across Washington and northern Idaho. Similarly, HealthPartners, founded in 1957, is one of largest health organizations with a community governance model in the nation and boasts of more than 1 million members.

CO-OP Basics You Should Know

1. Realm of Consumer Engagement—CO-OPs will primarily function in the small group niche, serving businesses with 100 or less full-time employees. CO-OPs are likely to engage consumers in the individual market too.

2. Sponsors—Each CO-OP sponsor is essentially a non-profit health plan issuer. This includes state-run health membership associations and consumer-run groups apart from community organizations, regional healthcare organizations and stakeholder groups like labor unions. To qualify as a CO-OP, the non-profit organization needs to be compliant with the state laws and have a strong consumer-focused presence.

3. Monetary Mandates—A CO-OP is mandated not to receive more than 40 percent of its funding from state government or federal authorities. Any surplus revenue should be used for reducing premiums, increasing the range of benefits and improving quality of care.

4. Governance—A CO-OP is not allowed to have representatives from the government, health insurance companies or industry organizations on its board of directors. The Affordable Care Act allows CO-OPs to negotiate with health insurance businesses and collectively purchase items for reducing the cost of health plan.

What sets CO-OPs apart?
The primary factor distinguishing the CO-OP program is the proposed form of consumer governance. The general method of functioning and policies of the CO-OP will be decided its board of directors who are elected via transparent voting by the members. The CO-OP is very similar to other cooperatives that have been established with a purpose of bringing substantial economic benefit to the members and the local community. The members themselves typically govern cooperatives, in order to eliminate fears of manipulative practices. To ensure that the CO-OP is not limited in its range of functions, no membership limits have been set.CO-OP members have been given the liberty to decide whether they choose voluntary participation or salary-based employees. CO-OPs can also choose a blended way of functioning, i.e. voluntary community members governed by paid employees.

Likely Challenges
CO-OPs are likely to face stiff competition from private insurers when open enrollment on the exchanges begins in October. For starters, federal funding is not expected to be raised any time soon. The funding extended to CO-OPs is essentially a loan that should be paid back via revenue generated from the exchanges. Further, each CO-OP needs to invest in provider networks, service personnel and claims administration to offer reasonable health plan benefits. To provide a substantial range of services, CO-OPs will need to involve local health professionals for disease management, prevention and wellness that require state-level recruitment efforts. This might challenge the ability of CO-OPs to offer significantly lower-priced health plans. CO-OPs cannot spend federal funding on marketing or promotional activities. This might reduce the ability of some CO-OPs to grab the consumers’ attention. There is little clarity on how CO-OPs will penetrate rural communities without a reasonable state-run healthcare infrastructure or community healthcare set-up.

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