Still Stumped by Obamacare? Health Co-Ops May be an Option.

In the midst of the brouhaha over the botched rollout of healthcare.gov on Oct. 1, small business owners may have overlooked another source of affordable health plans: the new state health insurance co-operatives. These plans, which also launched on Oct. 1, are available in 23 states and are being funded through loans provided by the Affordable Care Act, commonly known as Obamacare.

If you're still looking for a health plan to put in place when the employer mandate goes into effect in 2015--or if you're too small to be subject to the mandate but want to cover your employees anyway--a health co-op may be a good option. Unlike traditional health plans offered by large insurers, co-ops are non-profit organizations that are run by their members. Initially all 23 co-ops will operate as public-private partnerships, but once they pay off their loans, full ownership will shift to their members. ("Co-op" is actually an abbreviation for "Consumer Operated and Oriented Plan.")

That operational model can offer several benefits for small companies, says Julia Hutchins, chief executive officer of Colorado HealthOP. "Our membership structure allows stakeholders, including small businesses, to have a say in how the profits are re-invested," Hutchins says. "Profits are not going to shareholders--they're going back into reducing costs or expanding benefits, and members will have a vote in how that happens."

Co-ops also tend to be more focused on promoting wellness than traditional plans are, Hutchins says. The plans Colorado HealthOP offers have built-in incentives to keep people healthy, such as the opportunity for employees to get discounts on co-pays if they perform simple preventative actions like having an annual physical exam.

There are other options for companies that want to take control of their health coverage, such as partially self-funding their insurance. But that doesn't offer as much opportunity for pooling your risk with that of other companies. Joining a professional employer organization does put you into a larger risk pool, but you'll have to hand over some control of your human-resources functions to the PEO.

Co-ops often offer as many choices of coverage as private insurers do. Arizona's co-op, Meritus, for example, has 11 HMOs and PPOs on its menu. That said, for the co-ops to work as they were initially intended, they'll have to build a critical mass of members, and that has been a challenge, says Kathleen Oestreich, chief executive officer of Meritus. "Like all insurance companies, the larger the numbers [of members] the better the risk," Oestreich says. Enrollment in Arizona's co-op was significantly impeded by the delayed rollout of healthcare.gov, even though anybody can enroll in Meritus without going to the exchange, Oestreich says. "We've been fighting a tide of confusion," she says.

Meantime, a handful of trade organizations have created private health co-ops, in response to small business owners who have been frustrated by delayed public options. One example is The Dwyer Group in Waco, Texas, which operates seven franchise companies, including GlassDoctor, Mr. Appliance, and Rainbow International, in more than 40 states. It launched a private co-op on Dec. 1 that offers a choice of three health plans, and the response so far has been "very positive," says Doug Dixon, president of ProTradeNet, the division of Dwyer that's running the co-op. "One thing we kept hearing from our franchisees was that there was too much choice out there with the Affordable Care Act and they were very confused," Dixon says. "What we did was narrow down the choices for them based on our knowledge of the types of plans that would be the best fit for them."

As for the public co-ops, the ACA initially intended to create them in all 50 states, but in early 2013, loan funding was cut during the budget negotiations. If your business is based in a state that does not offer a co-op, stay tuned. In July, Sen. Mark Begich (D-Alaska) introduced a bill that would create funding for additional public health co-ops.