Co-ops take different approaches to network development
Where did these new co-ops come from?
New health insurance consumer oriented and operated plans, or co-ops, are supposed to increase competition and provide consumers with a greater variety of health insurance options – but how will they compare to incumbent insurers? The Affordable Care Act spurred the development of these co-ops and CMS (Centers for Medicare & Medicaid Services) awarded low-interest loans to 24 co-ops offering coverage in 24 states; there are now only 22 co-ops participating in 22 different states through the ACA’s public health insurance marketplaces.
- The 22 states with co-ops are: Iowa, Nebraska, Oregon, Arizona, Colorado, Connecticut, Illinois, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Montana, New Jersey, New Mexico, New York, Nevada, South Carolina, Tennessee, Utah, Wisconsin
- A co-op in Vermont did not receive a license to operate from the state insurance department and subsequently dissolved
- An Ohio co-op did not receive a state license in time to participate on the state’s exchange in 2014
- CoOportunity Health is the only co-op serving two states: Iowa and Nebraska
- Oregon is the only state that has two participating co-ops
Lease a network or build a network?
In the new public exchange landscape, both incumbent insurers and co-ops are faced with the challenge of developing provider networks for exchange products. Both set out with the goal of controlling costs while focusing on quality. As the U.S. healthcare system changes, the development of competitive provider networks has grown increasingly important as insurers lose the ability to compete on other factors surrounding health plan design and many consumers purchasing insurance through public health insurance exchanges are price sensitive. A well developed provider network can offer consumers highly sought after providers but it can also be used to control costs in order to offer consumers health insurance options with lower premiums.
While many incumbent insures are utilizing existing provider networks, fine-tuning their broad networks or tailoring a network to develop a more narrow offering, co-ops are faced with choosing to either develop an entirely new provider network or lease an existing network.
- 8 co-ops have taken the route of developing their own network. The majority of these co-ops are contracting with providers to build out entirely new networks; these co-ops take on responsibilities like recruiting, contracting, and network maintenance. However, some are also utilizing rental networks to offer consumers access to a wrap network.
- 13 co-ops are utilizing leased networks. In some states, insurers are even competing on the exchange alongside a co-op to whom they have leased a network. The majority of co-ops leasing networks are offering products at very competitive prices.
- In Massachusetts, the vertical integration of health plan and provider resulted in the creation of a new co-op. On August 31, 2012, Tufts Medical Center, its New England Quality Care Alliance physicians network and Vanguard Health Systems announced that they were sponsoring a health insurance co-op. According to the August press release, the co-op’s “network will include the hospitals and doctors of Tufts MC and Floating Hospital for Children, NEQCA and Vanguard-owned MetroWest Medical Center and Saint Vincent Hospital, and will seek to establish a broad network of high-quality, lower-cost providers across the state.”
Will health insurance co-ops be able to compete against incumbent insurers?
According to a report from the McKinsey Center for U.S. Health System Reform, new entrants are pricing plans competitively and “Co-op insurers in particular are offering lower-cost products. More than a third of the cheapest products sold through the exchanges were created by co-op insurers in the 22 states where such entities exist.”
According to an analysis comparing average state premiums of co-ops against those of competing exchange insurers across multiple metal tiers and age levels:
- Over half of the co-ops renting their provider networks have premiums lower than the individual exchange market average
- About a quarter of the co-ops renting their networks have higher than average premiums
- About a quarter of the co-ops developing their networks have premiums lower than the individual exchange market average
- Over half of the co-ops developing their networks have higher than average premiums
So, can the remaining co-ops compete and survive? Co-ops face many challenges, including regulation, a lack of visibility and restrictions on how federal funds can be used – when developing products, how co-ops chose to approach provider network development will have a lasting impact on their ability to compete.
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