Doctors gain small foothold in CO-OP insurance before funding stops

The alternative health plans were designed to be competitive with for-profit insurers, but some interested organizations say they were frustrated by application roadblocks.

By — Posted Jan. 21, 2013

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As federal funding rapidly dries up for a new consumer-oriented health plan model that was supposed to be a health system reform alternative to for-profit insurance, observers are suggesting that the financial and administrative challenges to launching these plans may explain why so few that managed to get off the ground are being sponsored by physician organizations.

Nonprofit consumer-operated and oriented plans, or CO-OPs, were authorized by the Affordable Care Act to promote healthy competition with for-profit health plans offered through health insurance exchanges. At least $6 billion in start-up funding initially was earmarked to implement these plans, and the Dept. of Health and Human Services awarded nearly $2 billion to 24 CO-OPs operating in 24 states.

Nearly all of the remaining money, however, has disappeared since due to various congressional budget deals. CO-OP funds most recently were targeted as one of several offsets to prevent cuts to Medicare physician fees in January, a move that effectively shut the door completely on any new applicants entering the program.

Only 10% of the original money remains, and those funds will be used strictly to fund the existing CO-OP program, not to expand it, said Mark Rust, managing partner of the Chicago office for Barnes & Thornburg LLP and chair of the firm's national health care department. He's also general counsel for two of the existing CO-OPs, including Connecticut's HealthyCT, a physician-sponsored plan.

When final federal regulations on the program came out in December 2011, physician organizations — including the American Medical Association — expressed hope that the move would result in numerous health plan alternatives led by doctors' groups. But aside from HealthyCT, the CO-OP model doesn't appear to feature a strong physician footprint, at least in terms of sponsorship.

At least two other physician-sponsored CO-OPs had applied to the Centers for Medicare & Medicaid Services by the end of 2012, but neither will come to fruition due to the latest round of funding cuts, Rust said. Another CO-OP, the multistate CoOpportunity Health, involved doctors in the planning process, but the CO-OP itself is not sponsored by physician organizations, said Cliff Gold, the plan's chief operating officer.

Even with federal assistance, forming these CO-OPs required significant work and up-front capital. This wasn't as simple as filling out an application, Rust said. “You had to develop an organization, put together a really strong management team and strong business plan, and be able to sell the government on your business plan.” Numerous physician organizations showed interest in this process, but most couldn't get past the logistical hurdles, he added.

“There were clearly some people in CMS who were highly skeptical of physician-sponsored CO-OPs. But they did agree with one business plan that could work,” Rust said. The Connecticut State Medical Society and CSMS-IPA, a statewide independent practice association, “did everything right” with HealthyCT, he said.

Approval required major investment

David S. Katz, MD, a general surgeon and president of the board of directors of HealthyCT, said the CO-OP had been fortunate enough to obtain a $75 million federal loan before the latest budget cuts took effect. Outside of that loan, however, start-up costs ranged from an estimated $100,000 to $200,000 in actuarial, organizational and legal fees.

Securing the loan itself involved a 400-page application and the development of a 20-year business plan, as well as the acquisition of letters of recommendation or support from politicians, consumer advocates and doctors, Dr. Katz said. “It was a very intense, very loaded up-front commitment.”

After all that effort and expense, the expectation is that HealthyCT will emerge as an attractive, affordable option to Connecticut consumers seeking coverage in 2014 and beyond.

“One of the advantages of the nonprofit status that we have is revenues that we generate are going to be mainly plowed back into the business, as far as keeping premiums low and helping keep reimbursements for services healthy. We don't have stockholders to answer to, and we don't have large CEO salaries,” Dr. Katz said. The CO-OP plans to place a strong emphasis on the patient-centered medical home model, a direction that he said will encourage preventive care and keep people out of the emergency department.

Dr. Katz said there were specific advantages to setting up a CO-OP in a state like Connecticut. “The way the original law was built was that these entities were supposed to be statewide entities, and we already had a statewide IPA.” Connecticut also was big enough to qualify for money but small enough to make it relatively easy to form this type of organization, he added.

HealthyCT doesn't have an insurance component and is building that part, “which is no small task,” Dr. Katz said. “But from an organizational point of view, from a trust point of view, a lot of relationships had already been formed. So I think this was easier for us to do than a lot of other places.”

California doctors didn't make the cut

Things didn't go as smoothly for two California medical societies that tried and failed to obtain federal approval for their joint CO-OP application. The Pacific CO-OP for Health actually had been formed by a nonprofit PPO network known as the Inland Empire Foundation for Medical Care, but the proposal was co-sponsored by the Riverside County Medical Assn. and the San Bernardino County Medical Society, said Dolores L. Green, the Riverside society's executive director.

The CO-OP had submitted an application to CMS in late December 2011, receiving letters of support from various hospitals, IPAs and medical groups in the community. Although it initially was accepted, the application later was denied after its participants went through an interview process. Green said CMS appeared to be holding physician-sponsored applications to a higher standard than it did other COOP applications.

“At that time, CMS did inform us that they were not looking favorably at physician-driven CO-OP applications and wanted to see, even during the application process, that the CO-OP was being formed by a broader section of the market than the physician organization trying to bring it to fruition,” Green said. The applicants then were invited to resubmit after addressing a list of areas in which additional information was needed.

The CO-OP's board eventually decided not to resubmit the application due to the financial commitments it already had expended in the original application process, “and the additional financial resources needed to comply with the 'areas of deficiencies' identified by CMS,” Green said. A CMS spokeswoman said in a statement that CO-OP loan awards were made on a competitive basis, and that each application was reviewed “on the reasonableness of the application.”

The mere fact that physician organizations largely didn't sponsor CO-OPs doesn't preclude doctors from participating in one, Rust said.

HealthyCT is hoping that many small physician businesses in Connecticut will join the CO-OP, Dr. Katz said. “The whole concept of a CO-OP is the members who buy the insurance are the ones who run the company.”

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A closer look at Connecticut's CO-OP

HHS has issued nearly $2 billion in low-interest loans to help nonprofit groups set up consumer-operated and oriented plans, or CO-OPs, under the health system reform law. HealthyCT, sponsored by the Connecticut State Medical Society and CSMS-IPA, is one of 24 CO-OPs that will operate in 24 states.

Name: HealthyCT

Service area: Connecticut

Award amount: $75,801,000

Award date: June 8, 2012

Covered lives: 35,000 to 40,000 in first year

Insurance markets: Small-business, individual, possibly large-business

Type of network: Open; any licensed health care professional that meets certain criteria can join without going through the CSMS-IPA

Care emphasis: Patient-centered medical homes and preventive care

Source: American Medical News reporting; “New Loan Program Helps Create Customer-Driven Nonprofit Health Insurers,”, updated Dec. 21, 2012 (link)

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24 CO-OPs that made the cut

Much of the Dept. of Health and Human Services funding for consumer-operated and oriented plans, or CO-OPS, has been eliminated through various congressional budget deals, eliminating the possibility of new applicants in 2013. These 24 remain.

  • Compass Cooperative Health Network (Arizona)
  • Colorado Health Insurance Cooperative Inc./CHI (Colorado)
  • HealthyCT (Connecticut)
  • Land of Lincoln Health, incorporated as Metropolitan Chicago Healthcare Council CO-OP (Illinois)
  • CoOportunity Health, formerly Midwest Members Health (Iowa and Nebraska)
  • Kentucky Health Care Cooperative (Kentucky)
  • Louisiana Health Cooperative Inc. (Louisiana)
  • Maine Community Health Options/MCHO (Maine)
  • Evergreen Health Cooperative Inc. (Maryland)
  • Minutemen Health Inc. (Massachusetts)
  • Michigan Consumer's Healthcare CO-OP (Michigan)
  • Montana Health Cooperative (Montana)
  • Hospitality Health CO-OP (Nevada)
  • Freelancers CO-OP of New Jersey (New Jersey)
  • New Mexico Health Connections (New Mexico)
  • Freelancers Health Service Corp. (New York)
  • Coordinated Health Plans of Ohio Inc. (Ohio)
  • Freelancers CO-OP of Oregon (Oregon)
  • Oregon's Health CO-OP, incorporated as Community Care of Oregon (Oregon)
  • Consumers' Choice Health Insurance Co./CCHIC (South Carolina)
  • Community Health Alliance Mutual Insurance Co. (Tennessee)
  • Aarches Community Health Care/AHC or Aarches (Utah)
  • The Vermont Health CO-OP, incorporated as the Consumer Health Coalition of Vermont (Vermont)
  • Common Ground Healthcare Cooperative (Wisconsin)

Source: New Loan Program Helps Create Customer-Driven Non-Profit Health Insurers,, updated Dec. 21, 2012 (link)

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