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U.S. Health Co-ops Get Ready To Compete With Big Insurers

People in the market for health insurance in Oregon want to know what their out-of-pocket expenses will be — down to the dollar. They want doctors who reply to e-mail. They want the option to see alternative practitioners.

And of course, they want premiums that don’t burn holes through their pockets.

That’s what focus groups have told Oregon’s first consumer-owned and -operated health plan. And that’s what the fledgling co-op is promising to deliver later this year when it begins enrolling members.

“If a member calls or e-mails their doctor, that’s going to cost 15 bucks — period,” said Ralph Prows, the chief executive officer. “If they go see a doctor, it’s a co-pay of 35 bucks — period. If they go to a specialist, it will be 70 bucks — period.”

This fall is the moment of truth for Oregon Health Co-op and 23 other consumer-owned and -run plans created by the Affordable Care Act to increase competition and give consumers a greater say in their coverage. Funded by $1.9 billion in low-interest federal loans, the co-ops were tucked into the law to mollify liberals who had unsuccessfully sought a “public option,” or government-run insurance plan.

But will consumers buy insurance from upstart nonprofit groups? And will the co-op plans be competitive with those offered by industry giants such as UnitedHealthcare and Aetna, which have the clout to exact big discounts from hospitals and doctor groups?

Four months before the opening of new online health insurance marketplaces where the plans will be sold, the co-ops see some positive early signs.

Proposed premiums in Oregon — one of a number of states to publish preliminary figures — compare favorably to what commercial plans are charging. A single nonsmoking 40-year-old will be able to choose a basic policy for $234 a month from Oregon Health Co-op, or $251 a month from Freelancers Co-op, which will also compete in the state. Comparable plans from other companies will cost from $169 to $422 a month, state data show.

Critics had also questioned whether the co-ops could attract seasoned leadership, but among their chief executives are former state insurance commissioners Janie Miller of Kentucky and David Lyons of Iowa and former Baltimore health commissioner Peter Beilenson, said John Morrison, president and chief executive of the National Alliance of State Health Cooperatives, which was formed to support the co-ops.

“These are not babes in the woods,” he said. Many left secure jobs because they were “frustrated with the inefficiencies of the status quo and the unwillingness of the health insurance industry to accomplish real change on its own.”

Still, there is skepticism in some quarters, especially from commercial insurers who say co-ops have an unfair advantage with their low-interest loans. Some conservatives also question their viability.

“They are basically starting new insurance companies from ground zero, and that’s very difficult,” said retired heart surgeon and health care analyst Roger Stark of the Washington Policy Center, a Seattle think tank that promotes free-market policies. “I’m all for giving consumers a lot of choices, but most of these start-up loans come from taxpayers, and a lot is going to go to waste.”

Criticism of the program, combined with pressure to reduce federal spending, has already resulted in successive congressional budget deals that slashed funding from $6 billion to $1.9 billion; co-ops in 24 states instead of all 50 got loans.

Despite the reduced funding and some stumbles — for instance, Vermont Health Co-op’s initial licensing application was denied by that state — supporters say they’re confident that many plans will succeed. With no shareholders to answer to, they enjoy certain advantages over commercial insurers. They are building plans from the ground up and will engage members as active partners.

Through the creation of online insurance marketplaces, they will have the opportunity for the first time to compete with large commercial insurers on an equal footing, said Lyons, who heads CoOpportunity Health, a co-op in Iowa and Nebraska.

Lyons likens the marketplaces to food courts at the mall: “There’s McDonald’s, Burger King, KFC, but also — with the same space and signage — there’s a Bob’s Sandwich Shop and a local ice cream store.

“The online insurance market — the exchanges — are a game-changer,” he said.

The co-ops may also offer health plans to consumers outside the marketplaces.

Each co-op is devising its own approach.

In New Mexico, where diabetes is rampant, the co-op will pay community health workers to visit people in their homes, teach nutrition basics and make sure they’re managing their chronic conditions so they don’t have flare-ups and end up in the hospital, said Martin Hickey, chief executive of New Mexico Health Connections.

Health co-ops in Tennessee and South Carolina will pay doctors more when their patients are healthy, said Jerry Burgess, who heads both the Community Health Alliance in Tennessee and Consumers Choice Health Plan in South Carolina.

Maryland’s Evergreen Health Cooperative will offer consumers the option of getting their care through a medical home model, in which providers work in teams with social workers, health coaches and care coordinators. Salaried physicians will be responsible for about half the 3,000 patients typically cared for by a primary-care physician, and patients will be able to consult with outside specialists on the spot by Skyping, said Beilenson, the president and chief executive.

“People want personalized care and time with their doctor,” Beilenson said. “They want to be treated like a human being, not a number.”