State medical society, physician group may offer health insurance

Aiming to provide another insurance option for state residents, the Connecticut State Medical Society and its network of physician practices have created a nonprofit organization that they hope will be able to offer health insurance to individuals and small businesses as part of federal health reform.

Under the reform law, each state by 2014 will have a marketplace known as an exchange for people to buy health care coverage. Most plans sold on the exchanges are expected to be offered by private insurers. But the federal health reform law allows–and provides funding for–nonprofit, member-run health insurers known as Consumer Operated and Oriented Plans, or CO-OPs, to do so too.

The medical society and the Connecticut State Medical Society-IPA–an association of independent physician practices–launched a nonprofit called HealthyCT, with hopes of getting federal approval for it to serve as a CO-OP that sells insurance both through the exchange and outside it. The CO-OP’s physician network would likely come from the IPA, and its board would be made up of consumers and physicians.

CO-OPs would perform the functions that insurance companies do, and, like insurers, would need to have reserves–usually millions of dollars–to guarantee that they can pay claims. For that, CO-OPs will get help from the federal government, which can loan up to $3.8 billion to help CO-OPs get started and meet reserve requirements. Dr. David S. Katz, immediate past president of the medical society and a member of HealthyCT’s board, said that assistance is a key factor that makes the model possible.

Katz said he envisions the CO-OP as being more supportive of physicians and more transparent to consumers than insurance companies are now. Its philosophy will be to change the paradigm of how medical care is delivered, he said.

“We think eventually, by not needing to take profits out, that money will actually create a system that I think everybody wants created,” he said.

As an example, Katz pointed to care coordination, medical homes and electronic medical records, which can significantly change medical practices and require money. Typically, he said, private insurers won’t pay for those things up-front; instead, they want physicians to show that the changes will save money before paying for them.

“It’s like an unfunded mandate,” he said. Of the CO-OP’s approach, Katz said, “I kind of foresee it more as a funded mandate”–providing funding to help physicians make changes in their practices.

So far, much of the work has been conceptualizing the organization, Katz said; the “meat” of the work is just beginning. “It’s not something that’s coming easy, but we love the concept,” he said.

Developing the CO-OP will require building a significant infrastructure, said Michele M. Volpe, general counsel for the CSMS-IPA.

“It’s essentially an insurance company,” she said.

The medical society expects to get a verdict on its application in January.

Jennifer Jaff, executive director of Farmington-based Advocacy for Patients with Chronic Illness, who has been critical of the insurance industry, said she supports the move because having more options is better for consumers.

“Of course, it will be critical to see how this co-op will attract and reimburse providers–everything from hospitals to pharmacies to labs to radiologists–outside of the CSMS, and how the CSMS CO-OP will interact with consumers and provide better coverage and affordability than traditional insurance,” she said. “But we welcome this development and encourage the CSMS to include consumers in the planning phase of the co-op to ensure that it provides them with a genuine choice.”

Dr. David Thompson, president of the CSMS-IPA, said the CO-OP could change how health care is purchased and delivered.

“The payment models and legacy systems used by existing health plan payors have proven to be major impediments to the fundamental changes that are required to make health insurance more affordable to consumers and employers,” he said in a statement released by the medical society. “As small business owners, physicians are well aware of the financial burden health care benefits impose on employers.”

The federal regulations for CO-OPs are still being developed; the U.S. Department of Health and Human Services issued a proposed rule in July.

“The big question is what types of exceptions will CO-OPs have in addition to some of this initial funding to be able to compete in the marketplace,” said Robert Zirkelbach, press secretary for America’s Health Insurance Plans, an industry trade group. The group has urged policymakers to ensure that there is a level playing field between CO-OPs and insurance companies.

Katz said the move to create a CO-OP stemmed in part from the medical society’s experience attempting to buy insurance for its members. More than 80 percent of Connecticut physicians work in practices of four or fewer doctors, running small businesses and buying health care for themselves and their employees.

A survey of medical society members two years ago found that enough people favored an easier way to get insurance at a reasonable price that a plan including them would cover 5,600 people.

But Katz said commercial insurers would not bid on it. “It was stunning,” he said.