Insurance Giants Gain Unlikely Rival in Maryland Co-Op

UnitedHealth Group Inc. (UNH) and other U.S. health insurers will soon have company in Maryland: a nonprofit started by a county government that plans to sell coverage at rates as much as 30 percent 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 a provision in the 2010 Affordable Care Act.

The Howard County co-op will sell individual and small group plans through the insurance marketplaces created by the law to help extend medical coverage to 30 million uninsured Americans. It is among two dozen nonprofits to roll out coverage in 23 states starting in October, though the only one started by a local government. The program may become a model for other governments if it saves money by hiring doctors and smartly managing members’ care, said 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,” Ulman, 38, said in an interview. “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 U.S. 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.

Emergency Visits

One analysis of that early program, called Healthy Howard, conducted by researchers at Johns Hopkins University (43935MF) 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 Congress passed the health-care law, 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.

Ulman said his brother Doug, a three-time cancer survivor, is still alive “because we were blessed to have health insurance.” Ulman said he’s concerned that even with subsidies under the health law, those Americans who are neither impoverished nor wealthy will struggle to afford insurance.

Statewide Plan

When Beilenson and Ulman saw that the law put aside a significant amount of funding for co-ops, Evergreen was born, Ulman said. 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 said in an interview.

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 said.

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 said.

Opposition Spurred

Evergreen plans to combine more efficient care with close supervision of patients’ health by coaches and social workers, forming “teamlets,” Beilenson said. 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 percent 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, said Bradley Herring, an associate professor of health economics and policy at Johns Hopkins.

Senate Questions

Evergreen’s odds may be helped by Maryland’s unique system of setting hospital payment rates, Beilenson said. Maryland’s government negotiates prices at hospitals on behalf of all insurers in the state, an arrangement that is “beautiful for us,” he said.

“It is a risky undertaking,” said 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.”

U.S. Senator Tom Coburn of Oklahoma was among a group of Republican senators who asked Health and Human Services Secretary Kathleen Sebelius in May for an accounting of the financial risk of the health co-op program as well as how the entities would lower costs and promote competition.

Earlier this month, the Obama administration agreed to curtail the co-op program in a budget deal with congressional Republicans. Lawmakers closed the program to new applicants, and rescinded money that hadn’t already been promised in a move that will save about $200 million, according to the Congressional Budget Office.

Market Entrants

The Department of Health and Human Services initially estimated that about 60 percent of the startup loans would be repaid, in a July 2011 regulatory filing that first outlined the program. A subsequent, final rule in December 2011 said that “most” of the co-ops “are likely to be viable.”

Benjamin Goldstein, s spokesman for Minnetonka, Minnesota-based UnitedHealth Group’s UnitedHealthcare division in Maryland, declined to comment on the Howard County co-op.

If the goal is to foster competition, the insurance industry doesn’t see the need for co-ops, said Karen Ignagni, chief executive officer of America’s Health Plans, the insurers’ lobbying group in Washington.

“We’ve never understood the need to focus on bringing new entrants because there are so many insurers on the market today,” Ignagni said in a Jan. 25 interview at Bloomberg headquarters in New York. Still, she said, “we’ve never had a problem with competition in the market as long as people meet the same guidelines and there’s a level playing field.”

Taking Chances

The U.S. Center for Consumer Information and Insurance Oversight, an agency created under the health law to oversee the co-op funding, said it remains confident the program will eventually succeed.

“Two of the most important considerations for approval of co-ops were how likely they were to succeed, and their financial viability,” Barbara Smith, the center’s director, wrote in an e-mail response to questions. “We look at the co-op’s management team, their ability to assemble a provider network, their financial viability moving forward and their ability to have a relationship with the broader community.”

John Morrison, president of the National Alliance of State Health Cooperatives in Helena, Montana, said strong support from the government and the experience of people involved in the co-ops should ensure their success.

“There are a lot of people who’ve gone out on a limb supporting the co-ops,” he said in a phone interview. “If they thought that that limb was not strong, they wouldn’t be there, starting with the administration.”

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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