At the National Business Coalition on Health's annual conference this week, an attendee posed this question to presenters during a breakout session: Will large insurance carriers squash Consumer Operated and Oriented Plans when they attempt to compete for members.

Barbara Smith, one of the presenters and the associate director for the CO-OP Program at CMS, said there are concerns the CO-OPs could be negatively impacted by existing health insurers using tactics such as predatory pricing and cherry picking the healthiest people in the population. Smith also encouraged CO-OPs to devote their full attention to marketing their services as a way to offset any negative publicity directed their way from insurance companies.

To their advantage, CO-OPs will be capitalized by low-interest federal loans and, as new entrants in the insurance market, will have an initial exemption from medical loss ratio rules. CO-OPs are the result of federal healthcare reform legislation, and they are required to be consumer-governed nonprofit health plans. They are intended to provide more competition within insurance markets, including state health insurance exchanges, which are required to launch by 2014.

CMS has already received its first round of applicants seeking to become a CO-OP, and among them is Jerry Burgess, CEO of HealthCare 21 Business Coalition and Smith's co-presenter at the NBCH conference. He described the long and challenging process of setting the foundation for CO-OPs in Tennessee and South Carolina, including the recruitment of attorneys and insurance industry experts who volunteered their time.

A key to Burgess strategy is demonstrating to providers the benefits of CO-OPs, which he said will remove traditional insurance companies from interfering in the physician-patient relationship. Because providers see the CO-OPs as a positive alternative to traditional insurers that can bring more competition to the market, Burgess was able to obtain agreements with providers for favorable fee schedules and a commitment to reimbursement reform, such as bundled payments, in the future. Burgess said another lynchpin of his strategy is building a provider network that includes accountable care organizations.

While Burgess is off to a strong start, the real test will come when CO-OPs hit the market and start competing with large insurers, such as the BlueCross BlueShield plans in Tennessee and South Carolina. Only then will it become clear whether CO-OPs are squashed or, if successful, begin to reset the model for how providers interact with patients and payers.

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