Commissioner: CO-OPs Important Option for Low-Income Californians

California Insurance Commissioner Dave Jones has high hopes for Consumer Owned and Operated Plans (CO-OPs), a new form of health insurance that will be allowed in the state starting Jan. 1.

The not-for-profit, member-governed plans are designed for individuals and small groups, including small businesses.

“One of the most pressing issues facing Californians is the lack of options for obtaining affordable health coverage,” Jones said. “CO-OPs  can serve as one option available to nearly one million low-income individuals and their families.”

The Department of Insurance will license and regulate the plans under AB 1846, a bill that Gov. Jerry Brown (D) signed into law last month. The legislation by Assembly member Rich Gordon (D-Menlo Park) would also allow California CO-OPs to tap into a $3.8 billion federal loan fund to start the plans.

“Without this bill we couldn’t move forward in creating these CO-OPs, which could help drive down insurance rates,” Jones said.

CO-OPs are required to be not-for-profit organizations, so they can provide value to members through lower premiums, lower cost-sharing or expanded benefits, Gordon said. The state’s new regulatory framework would allow CO-OPs to get federal funding and offer insurance products in the Health Benefit Exchange by the end of 2013, he said.

The Affordable Care Act has provisions for CO-OPs as a way of increasing competition in states’ insurance markets. They offer alternatives to for-profit carriers for individuals and small groups, supporters argue.

They must be state-licensed not-for-profits and can’t be sponsored by state or local government, under ACA regulations.

The member-owned plans could eventually bring lower prices for health coverage, said David Chase, California outreach director for the Small Business Majority, a business advocacy group that supported AB 1846. “We felt this would boost competition and increase choice in the market,” he said. “Small businesses are under-served and under-insured.”

The new law doesn’t establish individual CO-OPs, but sets up a state regulatory framework for the cooperative health plans, which have never before been licensed in California, Jones said. More than 20 health insurance CO-OPs have already been created in other 20 states, and they’ve been granted more than $1.6 billion in federal low-interest startup loans.

The California legislation authorizes CO-OPs both inside and outside the state’s Health Benefit Exchange, Jones said. The Department of Insurance sponsored AB 1846.

Gov. Brown also signed two other department-sponsored bills that deal with health insurance.

AB 999, by Assembly member Mariko Yamada (D-Davis), is aimed at limiting rate hikes for long-term care insurance. It changes the department’s rate-setting process to provide greater flexibility, Jones said.

It provides greater pooling of claims experience to spread costs, limits the inclusion of asset investment yields and imposes stricter loss ratio requirements. The changes are meant to protect policyholders from steep rate hikes, which have ranged from 20% to 60% in the recent past,  Jones said.

The governor also signed AB 2138 by Assembly member Bob Blumenfield (D-Van Nuys). It requires insurers to pay 20 cents per policy holder to fund investigation and prosecution of health and disability insurance fraud in California. The money goes to the Department of Insurance and county district attorneys.

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