$33.8 million in federal funding secured for consumer-owned health insurance company in Vermont
Today the US Department of Health and Human Services (HHS) announced the award of $33,837,800 million in loans to the Consumer Health Coalition of Vermont for the creation of a new non-profit health insurer in Vermont. Unlike Vermont’s current health insurers, the Vermont Health CO-OP will be entirely member-owned and governed. Of the loan award, $6,289,400 is allocated for “start-up” and $27,548,400 for cash reserves (“solvency fund”).
“We’re excited to be part of a national movement of member-owned and governed health plans. We believe the Vermont Health CO-OP will play an important role in health care reform and is a perfect fit for Vermont’s culture and rich heritage of cooperative endeavors,” said Mitchell Fleischer, Chair of the founding Board of Directors.
The Affordable Care Act (ACA) charged HHS with designating at least one CO-OP in each state, which will provide a selection of innovative health plan options for the state’s Health Insurance Exchange, slated to begin operation in January 2014. The federal loan to Vermont Health CO-OP will provide funding for the 18-month start-up period for the new non-profit company, as well as the solvency fund required by the Vermont Department of Financial Regulation for licensed health insurers. The loan agreements with HHS require payback of the start-up loan within five years, and the solvency loan within 15 years.
The ACA requires these new health plans to be non-profit corporations, with direct election of the board by the individuals covered by the CO-OP’s health plans. The ACA also requires that any financial gains realized by the CO-OPs must be used exclusively on behalf of members and to re-pay the loans from the federal government.
The Vermont Health CO-OP is incorporated in Vermont and will apply for an insurance license immediately. It will begin marketing products by October 2013. CO-OP health plans will be available statewide to individuals and small groups through the Vermont Health Insurance Exchange starting January 1, 2014. The CO-OP also anticipates offering plans outside of the Exchange to larger employers as well.
The founding board includes individuals with extensive experience in health insurance, regulation, and health care delivery, including CEOs of successful Vermont start-up ventures.
Under the bylaws of the CO-OP, and as required by federal law, within two years of the issuance of the first insurance policies, the founding board will be replaced by an operational board directly elected by the members.
The Vermont CO-OP will work with Vermont Managed Care to coordinate the delivery of health services through its growing network of hospitals, physicians, patient-centered medical homes, and other health care providers throughout the state of Vermont.
“We will be working closely with the Vermont Health CO-OP to implement the types of delivery systems and payment reforms envisioned in Vermont’s Health care reform efforts,” said John Brumsted, president and chief executive officer, Fletcher Allen Health Care, which wholly owns Vermont Managed Care. “We’re excited to have a partner whose foremost goal is to strengthen the patient-physician relationship, and who is eager to innovate with us in the new health care reform environment.”
Todd Moore, president of Vermont Managed Care said “We believe the Vermont Health CO-OP strongly aligns with our vision of the future, where provider-based organizations assume financial accountability for the medical cost and quality outcomes for a population. We anticipate strong relationships with payers in our market area who see value in this type of payer-provider partnership, and are confident that the Vermont Health CO-OP will be a leader in applying this model.
Founding Board member James Lampman, President of Lake Champlain Chocolates, noted that the mission and governance of the Vermont Health CO-OP differentiates it in important respects from other health insurers. “The CO-OP will be a democratically operated health insurance company. Its only purpose is to serve its members. All of the founding Board members are dedicated to establishing a corporate culture centered on that goal. The CO-OP will focus on our Members’ health improvement and will operate with full transparency.”
As part of the rigorous application and selection process established by HHS, the CO-OP was required to present comprehensive feasibility and actuarial studies and a business plan. Moreover, the CO-OP is required to meet a series of strict operational milestones in order to continue to draw down the federal loan funds. The CO-OP is subject to oversight by the Vermont Department of Financial Regulation and the federal Department for Health and Human Services until the loan funds are fully repaid.
Formation Board of Directors
- MITCHELL FLEISCHER
- President, Fleischer Jacobs Group
- DAVID JILLSON
- Business Manager, Orthopedic Surgery
- JAMES LAMPMAN
- President, Lake Champlain Chocolates
- DOUG NEDDE
- Principal, Redstone Group
- MARK PITCHER, MD
- Partner, Good Health PPC
- PAULLETTE THABAULT
- Senior Manager CVS/Caremark, former Commissioner Vermont Banking, Insurance, Securities and Health Care Administration
Overview of Consumer Owned and Operated Plan (CO-OP)
- Provisions in PPACA
- During the Congressional debates on health care reform when the “public option” proposal failed, people rallied around the idea of providing incentives and opportunities for member-owned and governed insurance companies to compete with the existing commercial insurance carriers in the new state-operated Health Insurance Exchanges. As a result, the federal health care reform law (The Patient Protection and Affordable Care Act – PPACA) created the Consumer Operated and Oriented Plan (CO-OP) program.
- The idea is to bring to health insurance the model familiar to many American for electricity, water, housing, and food -- the “cooperative” model of member-ownership and governance. (1)
- There are three major principles governing the award of the loans:
- (1) Consumer operation, control, and focus must be the salient features of the CO-OP and sustained over time;
- (2) Solvency and the financial stability of coverage should be maintained and promoted;
- (3) CO-OPs should encourage care coordination, quality and efficiency to the extent feasible in local provider and health plan markets; and
- (4) To be eligible for a loan, an applicant must be a private nonprofit member organization.
- An organization is not eligible for a loan if it was licensed by a State as a health insurance issuer as of July 16, 2009 or it was a related entity or predecessor organization of such an issuer. An organization is also not eligible for a CO-OP loan if the organization has as a sponsor a State or local government, or any political subdivision or instrumentality of a State or local government.
- Elements in PPACA provide strong support for CO-OPs:
- Start-up and Solvency Loans to cover the costs associated with getting the CO-OP up and running as a brand new insurance company, and to fund the “reserves” required by the state insurance regulators for licensing as a health insurance carrier.
- A requirement that a funded CO-OP must be allowed by states offer its health plans on the state’s Health Insurance Exchange.
- The statute provides loans to capitalize eligible prospective CO-OPs with a goal of having at least one CO-OP in each State. Congress provided budget authority of $3.8 billion for the program. The statute directs the Secretary to give priority to applicants that will offer CO-OP qualified health plans on a statewide basis, will use integrated care models, and have significant private support. The Start-Up Loan must be repaid in five years, and the Solvency Loan payback schedule requires payback of the loan in 15 years. The interest on these loans is close to zero, as it is the fed rate plus 0.
- CO-OPS cannot be started up by insurers, nor can a CO-OP partner with existing insurance companies for operational activities and services. The law allows CO-OPs to sell policies outside of the Exchange, but the Exchange business must comprise at least 2/3 of the CO-OP business.
- Here are some other salient points from the federal law:
- Profits must be used to lower premiums, improve benefits, or to finance programs aimed at improving the quality of care to members.
- Representatives of federal, state or local governments as well as representatives of insurance issuers that were in existence on July 16, 2009 cannot serve on CO-OP boards.
- CO-OPs may establish private purchasing councils that may enter into collective purchasing arrangements for items and services. But councils are precluded from setting payment rates for health care facilities or providers that are participating in health insurance coverage provided by the plans. Other newly created CO-OPs are discussing group purchases of reinsurance, administrative services, actuarial services, etc.
- Consumer Health Coalition of Vermont (the Vermont CO-OP) has been incorporated as a non-profit entity for the purpose of offering health insurance plans on the Exchange and to large employers. The CO-OP’s bylaws conform to the federal requirements that the Formation Board be replaced by a Member-Elected Operational Board by 1/1/2016. The Formation Board oversees the management that will be setting up the CHCVT, getting everything ready to start issuing policies on the Vermont Health Exchange 1/1/2014.
- The federal website for CO-OP information is at:
- A good overview of the CO-OP legislation is Sara Collin’s testimony for the Commonwealth Fund, which can be found at:
- The Vermont CO-OP website is: www.chcvt.coop
CO-OP Press Conference and Announcement Q/A
- Q How did this happen? Where is this money coming from?
- A The federal government included a provision in the Section 1322 of the Patient Protection and Affordable Care Act (ACA) of 2010 to provide $3.4 billion in loans to establish non-profit consumer-based health insurance companies in every state, called “Consumer Oriented and Operated Plans (CO-OPs). These CO-OPs will provide health insurance to individuals and small employers in competition with other existing carriers. Larger groups can also sign up.
- The Consumer Health Coalition of Vermont, a non-profit Vermont corporation, was formed in October of 2012 for the purpose of applying for the designation as Vermont’s CO-OP. The bylaws and other governance documents for CHCVT specify that it will operate in full compliance with the ACA requirements for CO-OPs, including member-governance. CHCVT filed an application with HHS on January 3, 2012 for the loans, and for the past five months has undergone a rigorous evaluation of all aspects of the business plan, actuarial projections, and financial feasibility. The CHCVT application received the endorsement of Senator Patrick Leahy and Congressman Peter Welch, along with our partner Vermont Managed Care.
- Q How much money will the CO-OP receive?
- A The Department of Health and Human Services has provided two loans to the CO-OP. One loan in the amount of $6,289,400 is to cover start-up costs for the new insurance company. This loan will be repaid to the federal government during the next five years. The second loan provides the capital reserve required by the state of Vermont. This is not provided all at once, but will be drawn upon by the CO-OP as enrollment grows. These funds are not spent, but are held in reserve, like a contingency fund, to make sure that there is always enough money on hand to pay claims. The total amount available for reserves is $27,548,400. This loan will be repaid to the federal government over the first 15 years of the CO-OPs operation, or immediately upon closure of the CO-OP.
- HHS subjected the CO-OP’s business plan, actuarial studies and feasibility study to a rigorous five month examination prior to authorizing the two loans.
- Q Is this the only CO-OP in Vermont to receive funding?
- A Yes, The Vermont Health CO-OP is the only federally designated CO-OP in Vermont.
- Q How will the Vermont Health CO-OP be different from other insurance companies in Vermont?
- A The Vermont Health CO-OP is different in four very important ways:
- o First, the CO-OP is member-governed. Unlike other insurers in Vermont, this insurer will be governed by a Board of Directors that is directly elected by the people covered by the insurance policies. It’s
- o Second, the federal laws under which the CO-OP operates requires that if the CO-OP’s income is greater than expenses, those profits have to go back to the policy holders, either in expanded coverage or in reduced premiums.
- o Third, the federal law charges the CO-OPs nationwide with being health care innovators, with working specifically on reforms to provider payment, to health care delivery and health care quality improvements. The CO-OP can’t just sell insurance; we have to be a reform leader, which is why our partnership with Vermont Managed Care is so important to our members.
- o Fourth, because of these three differences, your role as a member and consumer is very different. You have a voice in the values, direction, goals and governance of the CO-OP. If you take care of your health and use the health care system wisely, and the CO-OP saves money, you’ll see the benefits yourself. And finally, you’ll be a part of a health plan built to support the reforms we all seek, one where the insurance company doesn’t have to interfere with the patient/provider relationship.
- Q What impact could Supreme Court decision on the Affordable Care Act have on the CO-OP and its funding?
- A We have been assured by representatives of the U.S. Department for Health and Human Services that the CO-OP Program will continue regardless of the outcome of the Supreme Court appeal, and that the funds being loaned to start the Consumers Health Coalition of Vermont are committed funds that will not be affected by any possible outcome of the case before the Supreme Court.
- Q Will the CO-OP sell Blue Cross, MVP or other policies?
- A The CO-OP will sell its own policies. The CO-OP is not an association or group; it is a member-owned insurance company. Once the CO-OP receives a license from the State of Vermont Department, the CO-OP will be a third health insurance choice for Vermonters.
- Q Who can buy insurance plans from the Vermont Health CO-OP?
- A The Vermont Health CO-OP will be applying for a license to issue health insurance products to individuals and small businesses (<50 employees) when the Health Insurance Exchange starts on January 1, 2014. We expect to start enrollment for those groups in October 2013. The Health CO-OP also hopes to sell insurance plans to businesses with more than
50 employees. Their enrollment is also targeted for October 2013 for plans to start coverage on January 1, 2014.
- Q When will the CO-OP insurance plans be available?
- A The CO-OP business plan projects enrollment to start in October of 2013. Our first task is to apply for a license as a Vermont insurance company.
- Q How much will the CO-OP’s health insurance plans cost?
- A It’s too early to know what the premiums will be for 2014, but our goal is offer plans that best our competition. We’ll be able to do this for two key reasons. First, our plans will be smart designs that give consumers positive incentives to get healthy and use health care wisely. Second, our agreements with Vermont Managed Care will give providers incentives to keep our members healthy and to provide high value health care. For example, we’ll help our members stop smoking, the doctor will help, and members stop, we’ll reward them. The beauty of the CO-OP’s structure is that when our members and providers spend less money, the members will enjoy lower premiums and better benefits, and providers will share the savings.
- Q What is the relationship between the Vermont Health CO-OP and Vermont Managed Care?
- A Vermont Managed Care is the network of health care providers that CO-OP members will be able to access. www.vermontmanagedcare.org The Vermont Health CO-OP and VMC intend to negotiate a risk-sharing financial agreement that allows VMC providers the flexibility to do what’s best for patients, while also incentivizing high value care. Through this agreement, VMC, which is a provider organization, will manage the care; the CO-OP will not manage the care. This is what consumers and providers in Vermont want.
- Q How many people will the Vermont Health CO-OP employ?
- A Another way the CO-OP will keep down costs is by staying small. Our business plan currently projects around 20 employees once enrollment reaches our projections for the fifth year. We won’t be adding employees to process claims and manage care, or spending money on technology to support those functions. The CO-OP will contract with a skilled administrator with high customer satisfaction ratings to process medical claims, and Vermont Managed Care will manage the medical network and medical care. The employees of the CO-OP will focus on member services, satisfaction, and financial management. One of the most important CO-OP employees will be the Ombudsman, whose job is to be an advocate for any and all members and their concerns, and to make sure the CO-OP complies with all state and federal requirements.
- Q Who runs the CO-OP? Who is on the Board?
- A As required by the federal law, the CO-OP must hold elections for the Board within one year of the issuance of the first insurance policies. For the Vermont Health CO-OP, that will be in late 2014. The entire Board, called the Operational Board, must be elected by membership by the end of 2015. In the start-up phase, the federal law allows a “Formation Board” to govern the CO-OP’s activities. The bylaws and governance documents, and the individual members of the Formation Board were vetted by HHS prior to the issuance of the loan to make sure that the CO-OP is independent of existing insurance companies, is truly member-governed and complies with all other federal laws governing the CO-OP health plans. In accordance with the business plan, the first milestones for the Board include hiring a Chief Executive Officer (CEO) and Chief Financial Officer (CFO) almost immediately. The CEO will then put together the senior management team, hire the additional staff needed, and start the process of applying for the Vermont insurance company license. Consultants on legal issues, business planning and operations, benefit design and provider contracting are available to the Board and CEO until the CO-OP has staff to take on those responsibilities. The list of Board members, and addition information about the Vermont Health CO-OP is on our website: www.chcvt.coop.
- South Burlington, June 22, 2012
- 1 Because not all states have business statutes allowing creation of a “cooperative” for health insurance purposes, the federal law requires incorporation as a cooperative or non-profit, as state statutes permit. That is also why the federal law creates an acronym – “CO-OP” designating consumer/member “ownership and operation” as the hallmark.