A new nonprofit health insurance company that will be governed by its members -- the individuals and businesses that purchase coverage -- is being created in New Jersey with $107 million in low-interest loans from the federal Affordable Care Act.
The new company is sponsored by the Freelancers Union, which made the application to the federal program. But the nonprofit will be a completely independent entity, open to all customers -- not just the 8,500 union members in New Jersey.
The venture is one of several nonprofit health insurers being launched nationwide by the federal Department of Health and Human Services. The nonprofits, several of which are also receiving federal low-interest loans, will operate independently of one another. (The $107 million applies only to the New Jersey company).
The goal of these independent nonprofits is to make sure consumers have plenty of affordable choices when Americans start shopping for government-subsidized health insurance from the state insurance exchanges that are set to begin operating under the ACA in 2014. That is when the ACA’s “individual mandate” takes effect, requiring most people to get health coverage.
Meanwhile, the future of the ACA itself is in doubt. Whether or not this new insurer will be able to launch won’t become clear until June, when the U.S. Supreme Court is expected to rule on the constitutionality of the ACA. Despite this uncertainty, the as-yet-unnamed nonprofit is preparing to apply for a health insurance license from the state Department of Banking and Insurance in order to begin enrolling customers in October 2013 for plans scheduled to take effect January 1, 2014.
Chief executive Tom Dwyer, whose 20-year career in healthcare and insurance has included the post of chief financial officer of the dental insurance company Dental Health Alliance, leads the company. Dwyer projects the new company will launch with a membership of about 17,000, with the number rising to about 60,000 by 2018. The new company will be a cooperative, with the majority of the board of directors elected by its members, who are also the health plan customers, he said.
“We will be asking our members to get involved in the governance of this company, and give us their ideas,” said Dwyer. The company will either return excess cash generated from its operations back to the members in the form of dividends, or will reinvest surplus funds back into the business.
“A nonprofit insurance company run by consumers could really change the market in New Jersey,” said Jeff Brown, healthcare campaign coordinator for the consumer advocacy group New Jersey Citizen Action.
Of the $107 million in loans awarded to the new venture in February by HHS, an estimated $13 million will finance start-up costs, and be repaid in five years. The bulk of the funding, $94 million to be repaid over 15 years, is the capital reserve that will protect the new company’s ability to meet its financial obligation to pay medical claims going forward. But as with any health insurer, the goal is to pay medical claims out of the premiums collected from the individuals and businesses that buy coverage.
The new company is teaming with Piscataway-based QualCare, a managed healthcare company that sells health plans to self-insured employee groups. QualCare will contribute its network of physicians and hospitals and handle the payment of claims.
Annette Catino, chief executive officer of QualCare, said she decided to work with the new venture “because there needs to be more alternatives in the New Jersey marketplace.” The federal government is funding these new health insurers around the country, “on the condition that they are not for profits and that they are consumer oriented, and we believe this will provide a new competitive alternative for New Jersey,” she said.
Dwyer said he expects to supplement the QualCare network with other providers. In particular, he will seek out primary care physician groups that have been designated patient-centered medical homes by the national standards group, the National Committee for Quality Assurance, as well as with practices that want to evolve into medical homes. A medical home coordinates patient care, whether it's from the primary care physicians or specialists, and strives to improve the delivery of care and better manage chronic conditions like diabetes and heart disease, which account for much of the escalation in healthcare spending nationwide. The idea is to lower costs by improving health outcomes.
The high cost of health insurance is a major reason why the insured go without coverage, and Dwyer said the new company will encourage innovative ways of delivering healthcare, in an effort to bring down costs.
Right now, most physicians and hospitals are paid on a fee-for-service basis, which rewards the healthcare system for providing more care, whether or not the population gets healthier. Instead, Dwyer said he would like to use a capitation payment model, in which healthcare providers are paid to provide and manage all the care the patient needs, meet quality goals, and have a financial incentive to avoid unnecessary care.
“The fee for service model has not worked, and we want to work with providers that understand that,” Dwyer said.
He added that company would not try to grab market share by offering low-priced coverage. “We are going to put out competitive products that we believe will be different enough in their design, and in the entire value proposition, that a segment of the [healthcare provider] marketplace will be looking forward to partnering with us.”
That said, Dwyer does expect the new company to gain market share.
“We are telling people, ‘We are here to innovate and shake up the market, so give us a try.’" The new company is starting out with the idea that “Fee for service is broken and we want to change that model and pay for outcomes.” A key goal is engaging the patients in how to use the healthcare system efficiently and become involved in improving their own health.
Dwyer commented that better care “is not necessarily cheaper care. We don’t mind paying for centers of excellence. We don’t mind paying top dollar for certain services, but we want to know that it’s being done efficiently and effectively.”