Ba coop health ins exc_&_co-o_ps[2single page]

Consumer Operated and Oriented
[Health]Plan (CO-OP)

Presentation to the Oklahoma Special Legislative Joint
Committee on Federal Health Care Law
Co-Chairs:

Special Committee 2011
BA Healthcare Cooperative, LCA
Healthcare Reform Legislative
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

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 2
• 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.

Numbers Are Saying to Us
Setting the Stage: What the

3


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

4
Fact:
2010 estimate by CMS = $2.53 trillion

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
2002
2005
2009
• The number of total discharges
from all hospitals in Oklahoma
increased 4.3 percent between
2002 and 2009

5

2002
Source: Office of State & Federal Policy, Oklahoma State
2005
2009 Dept. of Health, Oct. 28, 2011.

US/OK Medicaid Spending Allocation (Percentage): 2009
Percentage of Total Medicaid Expenditures in Facts:
2009 in the US and OK by Category • 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
Percentage of Acute Care Medicaid Expenditures was considerably higher for
in 2009 in the US and OK by Category 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 6

Source: Kaiser Family Foundation,
November 2011.

US/OK Medicare Spending Allocation: 2004

Percentage of Total Medicare Expenditures in Facts:
2004 in the US and OK by Service Line
• 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. 7

More Medicaid Enrollees Than Every

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 8
2009
Source: HealthLeaders Media, October 28, 2011; Kaiser
Family Foundation; and CMS.

Baby Boomers – The Great American Tsunami

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: USA Special Report: Boomer Nation, May 23, 2011, Source: US Census Bureau: Decennial Count and
page 9. projections through 2050, online tables, October
20, 2011. 9

America’s Health Rankings: Declining for OK
Oklahoma 2010

2010 =
$13.3 Billion

Total Charges for All OK Hospitals
2002 = $6.6
Billion

Health Status Ranking

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 10
• Overall hospital charges for OK hospitals have
grown by 201 percent from 2002 to 2010, from
$6.6 billion to over $13.3 billion

Limited Commercial Health Insurance Competition

11


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

12

Consumer Operated and Oriented Plans
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

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;
14
• CO-OPs are focused on the individual and small groups of consumers that
typically are not attractive to the private insurance companies.

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 15
Healthcare Cooperative, LCA is the first of its kind in OK and US and was
established under the expanded regulations of OK in 2009.

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)].
16

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 17
great challenge for sponsors to be able to build competitive programs
that go up against large established private insurance companies.

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 18
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.

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 19
Health Insurance Exchanges?

Implementing a CO-OP in Oklahoma

20


Health Insurance Exchange and CO-OP:
Putting it Altogether (conceptual model)
Federal and
State
Non-Profit Cooperative Programs,
Corporation Grants &
Loans
Operating Agreement Health Services Contracts

OK Center
for
Consumer Wellbeing &
Health Insurance Health Wellness
Collaborative (Exchange) Governance Information Programs
Board Exchange
Private
CO-OP
Health
Health
Plans
Plans (non- Data CO-OP
Negotiated Call Center Agents/ 21
profit) Integrator
Discounts &Repository Ins.
Counselors

Health Insurance Exchanges and CO-OPs
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 22
and should be incentivized through the CO-OP structure.

Appendices

23


Oklahoma Medicaid Spend Rate: 1995-2004

24


US-Oklahoma Medicaid Spend Rate: 2009

25


US-Oklahoma Medicare Spend Rate: 2004

26


US-Oklahoma Total Spend Rate: 2004

27


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

28


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

29


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

30


A Non-Profit Association of Specialized Companies Dedicated to Serving Healthcare Providers

Who We Are and Why We Exist
• 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 31
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.

Health Information Exchange

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

Health Northeastern
Oklahoma Greater OKC
Alliance for
Hospital
the
Council
Uninsured
Norman
SMRTNET
Physician
Direct
Hospital Org.

SMRTNET
SMRTSight Organization
al Members

Oklahoma SMRTNET
Cherokee County
State Management
Medical Committee
Health Services Council
(fiduciary body)
32
Assoc. (SMC)

Health Information Exchange
SMRTNET Member Locations

33


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