Health insurance co-op may be golden ticket

• CoOportunity, plans to market policies through new health insurance exchanges
• Federal regulators have approved 23 new insurance co-ops, mostly in rural states
• Sweeping health reform law encouraged co-ops

DES MOINES, Iowa — Cliff Gold jokes that he sometimes feels like Michael Corleone, the reluctant mobster from the Godfather movies.

"Just when I thought I was out, they pull me back in," Corleone famously complained after a failed attempt to escape the mafia life.

The don's workdays included ordering hits against rivals. Gold's career has been a bit less dramatic. He spent 30 years designing and marketing health insurance plans. He retired in 2008 from Wellmark Blue Cross & Blue Shield, the Des Moines-based giant where he'd been a top executive. He was relaxing in San Diego, where he planned to live part time, when his friend David Lyons called from Iowa in 2010 with a proposition he couldn't refuse.

Congress had just passed a sweeping health reform law. An obscure part of it aimed to encourage a new kind of health insurance organization, under which consumers would join together to form their own carriers. The idea would be similar to the co-ops that rural residents formed to deliver electricity and farmers formed to buy supplies and market crops.

Lyons, a former state insurance commissioner, thought Iowa could be a perfect spot for such an effort. Wellmark controls 86% of the state's market for insurance sold to individuals and 64% of policies sold to small employers. No other carrier has more than a few percentage points.

Lyons predicted Iowans would be hungry for a new option, and he asked his friend to join him in offering one. Gold was hesitant at first, but he believed Lyons was onto something. Within a few months, he was back in Des Moines, helping his old colleague write a proposal.

The company, initially called Midwest Members Health, announced last winter that federal officials had agreed to lend it up to $113 million to get started. The organizers hope they won't have to tap most of the federal loans, because premiums should be enough to cover members' health care costs. The loan offer is there to assure consumers, state regulators and medical providers that the company has enough assets to stay in business for the long haul.

The organizers were relieved when the Supreme Court ruled this summer that President Barack Obama's overall health reform law was constitutional. And they were glad to see voters re-elect the president, who has promised to see the law fully implemented. Another result in either case could have crimped the project.

"It would have affected our business plan, but not necessarily our existence," said Gold, 59, who is the company's chief operating officer.

Food court of insurance options

The company, now called CoOportunity, plans to market policies to Iowans and Nebraskans mainly through new health insurance exchanges. The exchanges, scheduled to open next fall, are to be computerized systems that help consumers and employers compare and purchase policies from competing vendors.

Gold said the format should help small organizations compete with big companies. He likens the situation to the food court at a mall, where various restaurants compete for shoppers' attention.

"Everybody is presented equally," he said. "They have the same amount of space, the signs have to be the same size, and everybody eats in the same place."

One of Wellmark's main advantages is that it has set up an extensive network of hospitals, clinics and doctors that have agreed to treat the insurer's members for relatively low, negotiated prices. The new co-op has bought the rights to use a network organized by an Omaha firm, Midlands Choice, which has signed up all of Iowa's hospitals and more than 90% of the state's doctors. An established Minnesota company has agreed to handle billing and customer service functions.

Small staff takes on insurance giant

CoOportunity has 17 employees working in modest office space in Des Moines. Its leaders plan to add about 23 more within two years, while farming out most chores to its partner companies. Lyons, the new firm's chief executive officer, said the small administrative costs should help keep premiums low.

The company's goal is to attract 50,000 members in Iowa and Nebraska within five years.

"Lots of people say we'll probably blow the lid off that, but it's a number we're comfortable with," Lyons said. He says the company is prepared to expand quickly if more consumers choose its policies.

By comparison, Wellmark has more than 2 million members in Iowa and South Dakota. Lyons said he'd be satisfied if the co-ops' main effect is to keep bigger companies honest by offering consumers a ready alternative.

Iowa may have niche for co-op

Federal regulators have approved 23 new insurance co-ops. Many are in rural states, such as Iowa and Nebraska, but others are in more urban states, such as New York and Massachusetts.

"Part of it depends on whether or not there were crazy people like us around to put one together," Gold joked.

Timothy Jost, a law professor at Washington & Lee University in Virginia, said the government started numerous health care co-ops in the 1930s. Those organizations flourished for a while, but most of them folded after the government pulled back and many doctors expressed hostility. A couple of them are now in existence, including a successful one in Wisconsin, said Jost, who specializes in health care law.

Jost said it's hard to predict how well the new co-ops will fare, but he expects states with highly concentrated markets like Iowa's could have a more obvious niche to fill.

Jost said many companies have shied from entering the individual insurance market because of fears they would wind up attracting mainly people with serious health problems, which could quickly drive them into insolvency.

"What you really worry about when you're offering policies in the individual market is not people with colds or the flu," Jost said. "It's people who need heart transplants or chemotherapy."

The health reform law helps deal with that problem by forming a pool that will force insurers with low-cost members to subsidize those with high-cost members.

Co-ops need insurance executives

Barbara Yondorf, a health policy expert from Colorado, said although the co-ops are supposed to be overseen by consumer-run boards, it's crucial that they have experienced insurance experts running the day-to-day operations.

Yondorf was co-chairwoman of a national advisory committee when the new co-op system was designed. She sees a strong niche for co-ops that provide personal customer service and demonstrate that they have strong ties to the community.

"A big model for them should be credit unions," she said. "Credit unions are competing against huge banks, but they're really expanding very quickly."

She says the co-op model should be assisted by the fact that under the health reform law, consumers who switch to a new insurer will be able to switch back a year later if they're unsatisfied.

Before that rule takes effect in 2014, consumers would have to worry that if they leave their current insurer, the company could decline to take them back or could charge them higher rates because of a pre-existing health issue.