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$3.8B in federal loans available for insurance co-op start-ups

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Donna Zimmerman
Donna Zimmerman, vice president of Government and Community Relations at HealthPartners.
MPR Photo/Elizabeth Stawicki

You may have heard of rural dairy co-operatives, utility co-ops,  maybe you even shop at a grocery co-op. They're all based on a similar premise: members own and operate an enterprise for their mutual benefit.

The federal health care law is encouraging private groups to form insurance co-operatives by making available $3.8 billion in start-up loans.

Co-ops could have a tough time breaking into the Minnesota market.

The federal government's vision for health insurance co-operatives would look like this:  consumers and small businesses would band together to offer health insurance as non-profits. Members would elect the board of directors, a majority of whom would be enrolled in the plan. Any profits would go right back into plans to lower premiums, improve benefits, or expand enrollment.

Bill Oemichen serves on the program's federal advisory board. He's also President and CEO of the Co-operative Network, representing more than 600 member co-ops in Minnesota and Wisconsin.  Oemichen says the program seeks to increase competition and give consumers a stronger role in their health insurance.

"Because the board directors are a consumer, they're really going to be thinking how can we serve our customers," Oemichen said.

For at least a year, Oemichen and several other groups have been trying to start a rural health insurance co-op in Minnesota called 40 Square, but getting state approval has been difficult. He's reluctant to talk about the project because he doesn't want to get farmers' hopes up that it will be available soon.  

The idea of co-ops is a familiar concept in Minnesota. The secretary of state's office says there are 777 active co-ops in Minnesota ranging from credit unions to utilities to dairies.

The concept of farmer health insurance co-ops, particularly in the Midwest, isn't new either.

During the 1930s and 40s, rural insurance co-operatives had a strong presence in the U.S., said Timothy Jost, a health policy scholar and law professor at Virginia's Washington and Lee University. Most collapsed after the government withdrew its support through the Farm Security Administration. Jost is cautiously optimistic about the future of co-ops under the federal health care law.

"It's going to be difficult to get these things going, Jost said. "There is the possiblity that if people really want consumer-owned co-ops that they do have some advantages and be able to get them going."

In Minnesota, health insurance plans must be non-profit. Three plans control about 80 percent of the individual and small group market: Blue Cross Blue Shield of Minnesota, Medica, and HealthPartners, which was founded in 1957 as a co-op.

Not considered a co-op now, HealthPartners supports the co-op model and company Vice President Donna Zimmerman said continues to be because consumers govern the board.

It will be tough for new entrants to break into the Minnesota market. Zimmerman said.

"We have a pretty saturated market of both delivery systems and insurance plans and so a lot of people are already enrolled in them," Zimmerman said. "I don't think it will be easy, but there'll potentially be a role for some of the co-operatives if they can find the right niche and right group of folks to serve."

The amount of loan money is substantial, $3.8 billion, but the federal government estimates that about a third of the loans will default. That concerns Geoff Bartsh at Medica who worries that the government investment in the co-ops will tip the playing field. 

The federal government expects that health insurance co-ops will be available as options in the state health insurance exchanges beginning in 2014.  The exchanges, a key part of the federal health care overhaul, will allow consumers to compare plans and buy health insurance online.