(Bloomberg) — U.S. health insurers soon will have company — and competition — in Maryland: a nonprofit started by a county government that plans to sell coverage at rates as much as 30% lower than competitors.
Backed by $65 million in federal loans, Howard County, a suburban area south of Baltimore, will become the first municipality to establish a nonprofit, member-run health co-op to compete with commercial insurers under the Patient Protection and Affordable Care Act.
The Howard County co-op will sell individual and small group plans through the insurance marketplaces, or exchanges, created by the law to help extend medical coverage to uninsured Americans. It is among two dozen nonprofits to roll out coverage in 23 states starting in October, though the only one run by a local government. The program may become a model for other municipalities if it saves money by hiring doctors and smartly managing members’ care, says County Executive Ken Ulman.
“What we’re looking at is creating a product that will be much less expensive than the private carriers are offering,” says Ulman. “We do have some resources here; this ought to be a place where we can create a model.”
The program, called the Evergreen Health Cooperative, and the other nonprofits are blossoming across the United States thanks to $2 billion in low-interest loans from the Obama administration. Evergreen builds on a program Ulman created in 2007 that won recognition from the Obama administration for extending health care to more than 1,000 county residents who lacked insurance, at a cost to local taxpayers of about $500,000 a year.
One analysis of that early program, called Healthy Howard, conducted by researchers at Johns Hopkins University in Baltimore found that the program’s participants visited emergency rooms less than half as often as insured people in the rest of the country.
After PPACA was enacted, Ulman and his public health director Peter Beilenson met to figure out what to do with their program. Since it wasn’t a health insurance plan, its members would have to leave in 2014 when the law requires all Americans to sign up for coverage.
When Beilenson and Ulman saw that the law put aside a significant amount of funding for co-ops, Evergreen was born, Ulman says. It is named for a Baltimore cafe where Beilenson planned the idea. Beilenson resigned from his government post in October to work as Evergreen’s chief executive officer.
Evergreen intends to have two types of insurance plans available in Maryland’s health exchange by October when enrollment begins for 2014, Beilenson says.
Customers can opt for a statewide plan that will resemble typical insurance products. Premiums for that plan will probably be slightly less than competitors, he says.
The other option, available at first only within Baltimore, will be a plan in which members are assigned to a “medical home” — one of four clinics where they’ll receive most of their care as well as advice from a “health coach.” Doctors within the medical home network will be paid a salary, rather than separate fees for each service they perform.
Wasteful and duplicative services will be eliminated by forcing doctors to work hand-in-hand, connected by electronic records and video-conferencing equipment, Beilenson says.
Evergreen plans to combine more efficient care with close supervision of patients’ health by coaches and social workers, forming “teamlets,” Beilenson says. As a nonprofit, the company should benefit from lower overhead than for-profit competitors, he said.
An analysis by the Seattle-based consulting company Milliman Inc. suggested the Baltimore-based network could offer premiums as much as 30% less than competitors, he said.
Still, the co-ops are experimental and their inclusion in the law spurred criticism about the startup costs from Republican opponents of the overhaul. Academics and analysts also expressed doubt about the nonprofits’ potential success.
“There unfortunately isn’t a strong body of recent research to either support or refute” Beilenson’s claim that Evergreen can undercut rivals by so much, says Bradley Herring, an associate professor of health economics and policy at Johns Hopkins.
“It is a risky undertaking,” says Les Funtleyder, a health-industry analyst at New York-based Poliwogg, an investment fund. “A lot of well-capitalized insurance companies have run into problems and haven’t been startups.”
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