The Centers for Medicare and Medicaid Services (CMS) recently announced that seven Consumer Operated and Oriented Plans (CO-OPs) had been chosen to receive loans to create “private non-profit, consumer-governed health insurance companies.” The co-op program was created as an alternative to the government-run public option and included in the ACA to provide competition policy makers felt was lacking.

Proponents believe co-ops will give consumers and businesses more choice, and the increased competition will drive premiums down and improve the quality of health care. Scheduled to begin operation in 2014, they will be available on state-run health exchanges and will primarily serve people under 65 in the individual and small-group insurance markets.

A total of $639 million in low-interest federal loans will go to these first seven co-ops. They will operate in eight states, but the program’s goal is to eventually have at least one co-op in every state.  The loans must be paid back over five years, and the money can only be used to cover start-up costs. Additional funding will be awarded to make sure plans have enough cash to cover unexpected claims.

Skeptics don’t believe the co-ops will be able to compete with large, established insurance companies. They doubt they’ll attract enough patients to gain the market clout needed to bring health care costs down. However, an impressive number of credible organizations are interested in starting co-ops. Some of the startups are expected to fail, and the government predicts the default rate on the loans will be nearly 40%. But proponents say the competition is needed and the program will be worth it, even if there are a few casualties initially.

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CMS Press Release 

CMS Fact Sheet

The ACA allows small employers to self-insure or maintain grandfathered policies – but a new RAND analysis shows that most small employers won’t self-insure because it exposes them to too much financial risk if employee medical expenses increase unexpectedly. In addition, federal agencies estimate that small employers won’t be able to meet the requirements to grandfather existing plans after 2014. However, if the regulations were changed to allow more employers to maintain grandfathered plans, the study says premiums would increase significantly and reduce enrollment through the Small Business Health Options Program exchanges by as much as 50% – which would have a negative impact on the price of plans in the SHOP exchanges as a result of fewer, more unhealthy populations comprising the bulk of exchange enrollments.

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Visit Extend Health — the nation’s largest private Medicare exchange.

A recent article in AdvertisingAge discussed new strategies some health insurance providers are adopting to deal with changes in the market resulting from the health care law. As full implementation of the ACA draws near, the increased competition it creates is leading some health insurance companies to rethink their strategy. To stand out from the crowd, these insurers are replacing their agent-driven model with a consumer-facing approach. While the ACA will give consumers more choice and ability to switch plans, it will increase competition for insurers eager to tap the 50 million uninsured in the U.S.

During the window of opportunity between now and 2014 health insurers are working hard to develop their efforts to market directly to consumers, including creating their own private exchanges and retail outlets. They are also stepping up efforts to differentiate their brands. For example, Aetna recently rebranded itself as the “health-solutions company” as it works aggressively to differentiate its corporate brand.

Visit Extend Health — the nation’s largest private Medicare exchange.