Nonprofit health insurers may offer better prices

Leah Shepherd

President Obama’s health care reform law has spurred the growth of a new breed of nonprofit health insurers that are consumer-governed.

Under the Patient Protection and Affordable Care Act, the federal government offers low-interest loans to nonprofit organizations, called co-ops, to help set up and maintain insurance coverage. They will be geared toward serving individuals and small businesses, but they also may serve large groups.

Co-ops getting off the ground

So far, 14 nonprofit co-ops in 14 states have received $1.15 billion in loans, according to the U.S. Department of Health and Human Services. Under the law, a total of $3.8 billion was set aside for loans to qualifying co-ops.

The co-ops, generally in the development stages now, will be directed by their customers and designed to offer individuals and small businesses more affordable and consumer-friendly health insurance options. Any surplus revenue that the nonprofits generate must go toward increasing coverage or lowering premiums. A majority of the people on a co-op’s board must be enrolled in the co-op’s health plan.

Starting Jan. 1, 2014, the co-ops will be able to sell health plans through new health care exchanges, or marketplaces, in their states. The co-ops also may offer health plans outside of the state-run exchanges.

Nonprofit vs. for-profit

The exact rates are yet to be seen, but consumers should expect the co-ops to offer lower premiums compared with for-profit plans. “The whole reason for the existence of these co-ops is to lower prices. If the co-ops are not able to offer coverage at a better rate, they’re not going to be successful,” says John Morrison, president of the National Alliance of State Health Cooperatives.

Will the co-ops cover the same things that most for-profit plans cover? The exact scope of coverage will vary, depending on the plan and the state. However, legal requirements and competition among plans are likely to keep the new plans from offering comparatively skimpy coverage.

The federal health care reform law and the state exchanges will impose minimum coverage levels that all the insurers, including the nonprofits, will have to meet. For example, the federal law requires all health insurers to cover the full cost of preventive care — such as vaccinations, mammograms and colonoscopies — without out-of-pocket costs for the patient.

State laws on health care coverage requirements vary. For example, 15 states, including New York and California, require insurers to cover diagnosis and treatment of infertility, and 29 states, including Texas and Virginia, require insurers to cover autism treatment.

A growing trend

The emergence of nonprofit health insurers appears to be a growing trend. Twenty-seven co-op development groups from 32 states attended a conference held in March 2012 by the National Alliance of State Health Cooperatives in March. “We’ve come a long way since last year,” Morrison says.

In Wisconsin, the nonprofit Common Ground Health Care Cooperative plans to start selling insurance policies in the summer of 2013, with coverage taking effect in January 2014. The organization has begun to negotiate contracts with doctors and other health care providers.

Bob Connolly, president of the Common Ground Health Care Cooperative, explains the differences between for-profit and nonprofit insurers: “Our members will see our annual report. They will know where the money goes. We are accountable to our members, not shareholders. Any surplus generated goes back to our members.”

Will co-ops lower costs?

In the long run, that approach might reduce overall health care spending nationwide, Connolly says. If more people have access to affordable health insurance, then fewer people will find themselves uninsured and relying on emergency rooms for routine care. ER visits are much more costly than a typical visit to a primary care physician.

“We’re going to be a new alternative for (consumers). We’re going to be a company that’s very different from what they’ve experienced before,” Connolly says.

“Our motivation as a health insurance company will not be to deny claims. We’re not in the business to make money. (Consumers) will have to judge us by the way we handle claims, the way we treat them, the way we listen to them, how much we charge them, what kind of education we provide to them,” Connolly adds.

It remains to be seen whether the co-ops will be able to operate more efficiently than the for-profit insurers and develop the negotiating power to compete against other insurers that have been in the market for many decades.

In a 2009 letter to U.S. Sen. Max Baucus, a Montana Democrat, the Congressional Budget Office predicted the co-ops would have “very little effect on the estimates of total enrollment in the exchanges or federal costs because, as they are described in the specifications, they seem unlikely to establish a significant market presence in many areas of the country or to noticeably affect federal subsidy payments.”

If the co-ops are successful, that may pressure for-profit insurers to lower their prices, Morrison suggests. The co-ops “provide more choice and affordability in the health insurance market,” he says.