Consumer Operated and Oriented [Health]Plan (CO-OP) Presentation to the Oklahoma Special Legislative Joint Committee on Federal Health Care Law Co-Chairs: Hon. OK Senator Gary Stanislawski Hon. OK Representative Glen Mulready

Mark Tozzio, MA-IHHS, FACHE Chairman and Co-Founder, BA Healthcare Cooperative, LCA Non-profit, Member Owned & Operated Limited Cooperative Association

Oklahoma State Capitol, Oklahoma City November 15, 2011

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Definitions • Oklahoma Healthcare Limited Cooperative Association

• The OK Legislature added a corporate category for healthcare organizations to become a Limited Cooperative Association under the statutes of the Uniform Limited Cooperative Association Act of 2009 – Title 18, Article 1, Section 441. The BA Healthcare Cooperative , LCA was the first of its kind to incorporate as a n Oklahoma Non-Profit Limited Cooperative Association in February 2010, dedicated to helping independent physician practitioners and small healthcare provider organizations enhance quality, access, and operational performance.

• Healthcare CO-OP • Consumer Operated and Oriented [Health] Plan created by the 2010 ACA – the present Federal legislation provides

$3.8 billion in loans to capitalize eligible prospective CO-OPs across the nation. The major difference from a traditional cooperative association is that the Members govern but do not own the non-profit organization.

• Healthcare [Quasi] CO-OPs (consumer-owned and governed) in Operation • Group Health Cooperative of Puget Sound – Washington State based in Seattle (600,000 members) • HealthPartners, Inc., Minneapolis-based non-profit (1.2 million members) • Farmers Health Cooperative, Wisconsin-based partnership with Anthem • Cooperative Health Choice of Western Wisconsin

• Health Information Exchange / Data Repository • SMRTnet is the only Oklahoma-based public non-profit in the country that builds multiple self-governed health

information exchanges that do not need government or grant money. All of these HIE share data.

• Health Insurance Exchange • Exchanges are marketplaces where insurance companies will compete for business on price and quality, giving

consumers more for their money and the same kind of insurance choices as Members of Congress.

• Operating Agreement • This is a binding agreement between two or more legal entities conferring responsibilities to manage the

operations of an organization (profit or non-profit).

• Services Contract • An agreement between agencies or entities to provider specific services according to the terms of the

arrangement. Governance is not necessarily controlled by the contracting entity.

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A Setting the Stage: What the

Numbers Are Saying to Us

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Fact: 2010 estimate by CMS = $2.53 trillion

The Cost of Healthcare in the U.S.: 1987-2007

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Oklahoma’s Total Hospital Inpt. Charges: 2002-2009

Facts: • The total charges from all hospital

discharges in Oklahoma from 2002 to 2009 increased 201 percent to $13.3 billion

• The number of total discharges from all hospitals in Oklahoma increased 4.3 percent between 2002 and 2009

Source: Office of State & Federal Policy, Oklahoma State Dept. of Health, Oct. 28, 2011.

2002 2005

2009

2002 2005

2009

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US/OK Medicaid Spending Allocation (Percentage): 2009

Facts: • Acute Medicaid spending in

2009 as a percentage of total Medicaid in OK ($3.9 billion = 65.7%) was slightly higher for than the Medicaid spending in the US ($366.5 billion = 61.9%)

• The percent distribution of total Medicaid dollars in 2009 spent for all services in OK was considerably higher for inpatient care and physicians/lab/imaging than the US

• The Federal Government had a much greater percentage of overall expenditures in the areas of Managed Care and Health Plans in 2009 than OK

Source: Kaiser Family Foundation, November 2011.

Percentage of Total Medicaid Expenditures in 2009 in the US and OK by Category

Percentage of Acute Care Medicaid Expenditures in 2009 in the US and OK by Category

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Facts: • Medicare spending in 2004

as a percentage of total dollars for acute care services was similar for OK ($3.9 billion = 55.7%) and the US ($366.5 billion = 55.1%)

Source: Kaiser Family Foundation, November 2011.

US/OK Medicare Spending Allocation: 2004

Percentage of Total Medicare Expenditures in 2004 in the US and OK by Service Line

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Source: HealthLeaders Media, October 28, 2011; Kaiser Family Foundation; and CMS.

Facts: • The total charges for

all hospital discharges in Oklahoma from 2002 to 2009 increased 201 percent to $13.3 billion

• The number of total discharges from all hospitals in Oklahoma increased 4.3 percent between 2002 to 2009; there was a small decrease in total discharges between 2008 and 2009

More Medicaid Enrollees Than Every

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Source: USA Special Report: Boomer Nation, May 23, 2011, page 9.

Photo: Emma Brown, Washington Post.

Facts: The percentage of US’ total population over 65 years of age enrolled in Medicare: 1990 = 13.6% (33.7 of 248.7 million pop) 2030 = 21.5% (80.2 of 373.5 million pop)

Source: US Census Bureau: Decennial Count and projections through 2050, online tables, October 20, 2011.

Baby Boomers – The Great American Tsunami

2010 = $13.3 Billion

2002 = $6.6 Billion

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America’s Health Rankings: Declining for OK

Total Charges for All OK Hospitals

Facts: • Oklahoma’s healthcare status ranking has

steadily declined from 32nd in 1990 among all states and DC to 46th (near the bottom) in 2010

• Overall hospital charges for OK hospitals have grown by 201 percent from 2002 to 2010, from $6.6 billion to over $13.3 billion

Health Status Ranking

Oklahoma 2010

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Limited Commercial Health Insurance Competition

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The CMS CO-OP Concept in Action

Borrowed from experts at the following organizations: Urban Institute

Kaiser Family Foundation Health Industry Washington Watch

National Conference of State Legislatures Group Health Cooperative Plans (Seattle)

Commonwealth Fund Oklahoma Department of Insurance

Hon. US Sen. Kent Conrad

CMS – The Center for Consumer Information & Insurance Oversight

How was the concept of a CO-OP included in the PPACA? “The Consumer-Operated and –Oriented Plan would allow for the creation of not-for-profit cooperatives that would provider affordable health insurance by creating a pool of consumers who could then negotiate with providers for health care.” [Hon. US Senator Kent Conrad] • The CO-OP concept was offered by US Senator Kent Conrad during the

work plan in June 2009 of the “Gang of Six” as an alternative to the “public option” which was stalling the Senate’s vote on the Healthcare Reform bill in Congress.

• CO-OPs must be organized as non-profit corporations under the laws of the “home” State. They can join together to create “private purchasing councils” to gain leverage and efficiencies to purchase supplies and services at a discount in much the same way “traditional cooperatives” operate.

• The key element of the CO-OP is that it is a private (non-governmental), state level entity, that is governed by and oriented toward the health insurance consumer (individual and small groups).

• This entity is different than the traditional cooperative organization in that it is not owned by its Members – the CO-OPs are consumer governed by individuals that are served by the program. 13

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Consumer Operated and Oriented Plans

How was the concept of a CO-OP included in the PPACA? (cont.)

• According to Sen. Conrad, CO-OPs have been successful in various locations across the nation:

• Group Health of Puget Sound, covering the Pacific Northwest with over 600,000 members;

• Cooperatives have been used extensively in the agricultural and energy business sectors, particularly in rural and sparsely populated regions.

• A criticism over the creation of CO-OPs relates to the so called “unfair advantage” over private insurance companies, due to the grants/loans provided by the government available to these non-profit CO-OPs. The legislation requires:

• CO-OPs to abide by the same rules as private insurance carriers regarding reserves, reinsurance requirements, actuarially equivalent benefits, and terms for participation in the Health Insurance Exchanges;

• CO-OPs are not backed by the federal government and must become self-sustaining;

• CO-OPs are focused on the individual and small groups of consumers that typically are not attractive to the private insurance companies.

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Consumer Operated and Oriented Plans

What is a CO-OP as Defined by CMS? “Like ordinary cooperatives, the ACA’s CO-OPs are to be consumer governed by boards elected by the members the organizations serve. However, these CO-OPs will not be owned by members or established under the state regulatory regimes that apply specifically to cooperatives.” [Bradford Gray, Ph.D.] • Created as part of the Patient Protection and Affordable Care Act of 2010

(ACA); it provides for the creation of private non-profit member operated governed health insurance plans that offer competitive coverage for individuals and small groups [Section 1322].

• “This proposed rule would implement the Consumer Operated and Oriented Plan (CO-OP) program, which provides loans to foster qualified health plans in the Affordable Insurance Exchanges (Exchanges). The purpose of this program is to create a new CO-OP in every State in order to expand the number of health plans available in the Exchanges with a focus on integrated care and greater plan accountability.” [45CFR Part 156, CMS-9983-P]

• The ACA provides for $3.8 billion to help fund the CO-OPs (originally $6 billion) – start up and solvency requirements (loans repaid over 5 and 15 years respectively).

• The ACA is similar structure as a farming Cooperative – the BA Healthcare Cooperative, LCA is the first of its kind in OK and US and was established under the expanded regulations of OK in 2009.

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Consumer Operated and Oriented Plans

What is a CO-OP as Defined by CMS? (cont.) • The National Alliance of State Health CO-OPs was formed on April 15,

2011 to help entities with application process (sponsors for 25 states have expressed intent to submit applications starting October 17, 2010 with grants awarded in early 2011). At least one per state was anticipated. [See also The Report of the Federal Advisory Board on the Consumer Operated and Oriented Plan (CO-OP) Program, April 15, 2011 – The Center for Consumer Information and Insurance Oversight (CCIIO)].

• Governing Board of Directors are elected by the plan Members of the CO-OP; it can also include experts who are not plan members who have special expertise relevant to running the CO-OP (finance, contracting, actuarial, medical management, marketing, planning, etc.).

• Anticipating one CO-OP per state (more are allowed), the funding was estimated at $10 million per plan or $500 million overall for “creating and developing” the CO-OPs.

• New IRS tax-exemption healthcare category created by ACA [501 (c)(29)].

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Consumer Operated and Oriented Plans

What are the key Conditions of Participation? “The governance requirements may deter sponsorship by some of the very organizations that might be most likely to succeed – those that have a potential pool of enrollees or a provider network.” [Bradford Gray, Ph.D.]

• The CO-OP must be a non-profit organization focused on providing

health insurance benefits to individuals and small groups (licensed by the States).

• The plan Members elect the Governing Board of Directors. • A detailed business plan, actuarial studies, and financial pro forma are

necessary for applicants to be considered for grants/loans for planning and start-up – these costs are paid only if the applicant is successful in gaining approval from CMS (cost are estimated in the range of $100,000).

• There is no “bright line” for determining the potential success of the application process – the grants/loans from CMS will be based on the strength and quality of the applications.

• The start-up loan must be repaid over 5 years; the operating loan is supposed to be repaid over 15 years from the proceeds of the CO-OP’s reserve funds.

• Grants/loans can not be used for “marketing purposes” which will be a great challenge for sponsors to be able to build competitive programs that go up against large established private insurance companies.

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Consumer Operated and Oriented Plans

What are the major challenges that CO-OPs face in the highly competitive health insurance arena? “If largely limited to the individual and small group markets, can CO-OPs achieve the economies of scale and negotiating power with providers needed to compete on price and be able to grow?” [Bradford Gray, Ph.D.]

• The perceived main challenges for “de novo” Consumer Operated and Oriented Plans fall into the following categories:

1. Establishing management expertise, infrastructure, and comprehensive provider networks to successfully operate a health insurance company.

2. Capturing sufficient number of plan Members to have an economically viable organization (a minimum of 5 percent market share is estimated to be necessary to have a competitive program – CMS estimates that 250,000 consumers in a State should be covered by CO-OPs).

3. Overcoming the marketing restriction.

4. Difficulties with “adverse selection” of covered lives.

5. The need to have a knowledgeable and involved/committed Governing Board of Directors made up of plan Members (although not exclusively) can be a particular challenge during the developmental period of the CO-OP.

6. The timeline for planning, funding, and operating the CO-OPs by 2014 is very tight.

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Consumer Operated and Oriented Plans

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Other important considerations… • Premiums will need to be 15 to 30 percent below the private market to

be competitive and capture a portion of the health insurance market.

• How will the “Essential Benefit Package” impact the cost of health insurance provided by CO-OPs?

• How will the CO-OPs meet the requirement of being part of the Health Insurance Exchange(s) in Oklahoma under the present conditions?

• What role will the State agencies play in the development of CO-OPs – Medicaid, Public Health, Insurance Commission, Dept. of Health, others?

• How will the CO-OPs participate in a state-wide Health Information Exchange? Who will fund this project?

• Will CO-OPs simply operate as the “plan of last resort,” or will they truly become another competitive alternative to private insurance plans?

• How will the Insurance Commission facilitate the creation of non-profit, plan Member oriented health insurance programs – will the $2 million solvency reserves need to be met before CO-OPs can become operational and generate revenue?

• What will be the role of the insurance broker/agent in the CO-OPs and Health Insurance Exchanges?

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Consumer Operated and Oriented Plans

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Implementing a CO-OP in Oklahoma

Non-Profit Cooperative Corporation

Health Insurance Collaborative (Exchange)

Private Health Plans

Negotiated Discounts

CO-OP Health

Plans (non-profit)

Consumer Governance

Board

Federal and State

Programs, Grants &

Loans

Health Information

Exchange

Call Center Data Integrator

&Repository

Operating Agreement Health Services Contracts

OK Center for

Wellbeing & Wellness Programs

CO-OP Agents/

Ins. Counselors

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Health Insurance Exchange and CO-OP: Putting it Altogether (conceptual model)

Takeaways: • The cost of healthcare in Oklahoma and the US seems unsustainable

beyond 2018 without significant healthcare reform (the math does not work).

• Oklahoma and the nation are experiencing exponential healthcare financing pressure as the Age Wave (coined by Ken Dychwald, Ph.D. in 1990) hits full force over the next decade.

• Significant investments in preventive health measures (wellness and health maintenance) for all ages is imperative to help manage the total demand for sick care and reduce chronic illness.

• There is ample room in the health insurance industry in Oklahoma to offer a Consumer Operated and Oriented Plan (CO-OP) that involves the members in the operations of their pool of healthcare dollars more effectively and cooperatively.

• Health maintenance and health status is a personal responsibility and should be incentivized through the CO-OP structure.

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Health Insurance Exchanges and CO-OPs

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A Appendices

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Oklahoma Medicaid Spend Rate: 1995-2004

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US-Oklahoma Medicaid Spend Rate: 2009

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US-Oklahoma Medicare Spend Rate: 2004

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US-Oklahoma Total Spend Rate: 2004

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US Medicare Income & Expenditures: 1970 (act) -2020 (est.)

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Medicare Personal Health Care in US and State of Residence: 1991-2004

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Medicaid Personal Health Care in US and State of Residence: 1991-2004

• The BA Healthcare Cooperative was Incorporated in Oklahoma as a non-profit

organization on February 17, 2010 (Limited Cooperative Association)

• It is the first of its kind Healthcare Cooperative in Oklahoma devoted to helping

independent providers (physicians, ambulatory centers, and hospitals) meet the

challenges of managing a costly and complex health system

• The Cooperative is comprised of three types of members:

• Founding Members who are all small business entrepreneurs dedicated to serving the

operational and supportive needs of physicians and affiliated providers

• Affiliates are specialized business partners and/or larger business enterprises that provide

goods and services to healthcare providers

• Associates (healthcare providers clients served by the Cooperative) who are the reason

for the Cooperative’s existence

• The Cooperative offers numerous services and program to its members as well as

access to one of the largest Group Purchasing Organizations (GPO) designed for

physicians and healthcare providers – HPS/Premier ProviderSelect:MD -- that offers

substantial discounts to members: medical products, medical equipment, information

technology solutions, EHR, office products and furniture, communications systems,

business consulting services, billing support services, and much more – a kind of one-

stop-center for all healthcare support.

Who We Are and Why We Exist

BA Healthcare Cooperative, LCA A Non-Profit Association of Specialized Companies Dedicated to Serving Healthcare Providers

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Health Information Exchange

SMRTNET Secure Medical Records Transfer Network A Public Non-Profit Health Information Organization Utility Company for Oklahoma

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32 SMRTNET

Management Committee

(SMC)

Oklahoma State

Medical Assoc.

SMRTSight

SMRTNET Direct

Health Alliance for

the Uninsured

Northeastern Oklahoma Greater OKC

Hospital Council

Norman Physician

Hospital Org.

SMRTNET Organizational Members

Cherokee County Health Services Council

(fiduciary body)

SMRTNET Member Locations

Health Information Exchange

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