Consumer-Owned and -Oriented Plan

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FAQ about the Consumer-Owned and -Oriented Plan (CO-OP)

What is this? The Consumer-Owned and -Oriented Plan would allow for the creation of not-for-profit cooperatives that would provide affordable health insurance by creating a pool of consumers who could then negotiate with providers for health care. The creation of these co-ops would address three principles of health care reform: choice, quality and cost. Co-ops would ensure that Americans would be able to continue to choose their doctors, and co-ops would provide greater value by returning surplus revenue to members in the form of lower premiums, lower cost-sharing, or expanded benefits. Co-ops would be self-governed by an elected board, but would operate within the health reform exchange, subject to the same rules and regulations regarding minimum benefits, actuarially equivalent packages, and reserve funds. Co-ops could be formed statewide or in geographic regions.

To be clear, the co-ops would still be buying insurance on the private market? No. The Co-ops would be the insurer. They would contract directly with providers and would have a mission of getting the best value for their consumer owners.

Would the co-operatives require federal investment at the start? New co-ops would need seed money to help them meet capital reserve requirements until they have premium revenues coming in. The federal government could offer startup funds through grants or loans, matched by states, local governments, or the co-op members themselves. The size of the federal loan or grant money would be limited, and after receiving the seed money the co-op would need to support itself, and the federal government would not give it additional money. In addition, the seed money would be available only for a limited time.

How will co-ops reduce health care costs? Co-ops would not buy insurance from private companies, but would provide the insurance themselves and contract directly with networks of providers for care. Many experts believe co-ops, as non-profits, could offer significant discounts when compared to traditional, for-profit insurance companies. Surpluses are returned to members in the form of reduced premiums, enhanced benefits, or lower cost-sharing. In addition, the co-ops would be motivated to keep costs down by implementing innovations such as wellness programs, chronic disease management, and integrated care.

Will co-ops be run by the states or federal government? Neither. The federal government would guide the creation of co-ops by setting standards and providing the seed money, but the non-profit, self-governed co-ops would form and run themselves. Members and a democratically elected board would make decisions such as determining premiums, benefits covered, deductibles and co-pays.

Have co-ops proven themselves a successful business model in other industries? Yes, co-ops have been successful in many areas, including health care. One example is Group Health of Puget Sound, which is a large health insurer in the Pacific Northwest. Cooperatives have also been successful in agriculture and in the energy business. Some examples of successful co-ops include, the Associated Press, REI, Land O'Lakes and Ace Hardware. And credit unions are a variant of the cooperative business model.

Could the co-ops decide who to include (and who to exclude) in membership? No. Co-ops will be subject to the same rules as all other insurance plans under the health reform proposal, so they would have to provide insurance to anyone who decided to join and paid the premiums of membership.

What would the cost be to join a co-op? Costs would be determined by the co-op, as the democratically elected directors manage revenue and negotiate details of the insurance coverage with providers. The goal of the co-op is to make insurance coverage affordable, but that would be determined by the size of the co-op and membership decisions about the benefits covered. Premiums would be set at an actuarially sound rate to meet the costs of covering the members.

Would co-ops have an unfair advantage over private insurance? Co-ops would be required to abide by the same rules as private insurance companies regarding reserves, reinsurance, actuarially equivalent benefit packages, and all other rules that would apply to the Exchange. In addition, co-ops are not backed by the federal government - after a startup period and seed money that will come from federal and state governments, they must be self-sustaining. Co-ops would not be a drain on the federal budget.

How would this be better than a government-run public plan option? The co-op plan aims to achieve the same benefits for consumers as a public option without government control of health insurance. It does so by creating private, consumer-driven, non-profit health plans. Because these plans will be owned by their members, they will focus on getting the best value for consumers, rather than maximizing plan revenues or profits. In addition, since the federal government would not be backing the cooperatives, there is no government liability or support beyond the seed money. Finally, the co-op plan uses the tools of the marketplace to address the health care reform principles of choice, quality and cost.

How would this be better than a "level playing field" proposal? The "level playing field" proposal is a different way of trying to respond to the criticism that a government-backed plan might have unfair advantages that could lead to quickly dominate the health insurance market, bringing about the end of private insurance. Because the "level playing field" approach involves contracting with a private insurance company that is supposed to act just like other private insurance companies, it is not clear that it will provide a significantly different option for consumers. In addition, to date, Republicans have strongly opposed this option, making it unlikely to help in achieving bipartisan support for the broader health reform effort.