• John DiMartino

Cooperatives: Non-Negotiables


Recently, New Jersey has appeared on the national radar for some of the innovative strategies that have been launched. In particular, the integration and wide-spread use of Direct Primary Care and the use of an Online Auction to choose a PBM for the NJ State Plan, have been praised for increasing the quality of care and drastically lowering costs.

It's not just recently, for years there have been strategies aimed at providing plan sponsors with affordable coverage. Purchasing cooperatives, a catch all term used whenever several employers get together to procure, in this case, health insurance, has been around for more than 50 years. The NJ "State Plan" was created in 1961 to provide public employers with affordable medical and prescription drug insurance. Since then, several other purchasing cooperatives have entered the marketplace.

These cooperatives can provide a tremendous amount of value to an employer, who may benefit from the economies of scale, decreased administrative burden, and expertise of those who operate them.

With that said, here's what you need to ask your cooperative:

1. Do I benefit from the economies of scale?

When you join a cooperative, you should benefit from the economies of scale. That is, you should be able to get better pricing, stable renewals, and some relief of the administrative burden of overseeing the health plan. A consortium that hasn't reached "critical mass" may not be able to provide the necessary economies of scale.

2. Can I leave the cooperative?

Many of the cooperatives that exist in today's marketplace have provisions regarding the termination of your contract. You need to know what happens if you were to cancel the contract. Does it require 60 days? Is there a stipulation preventing you from rejoining? Are you responsible for any terminal liability or runout of claims? Can you leave "off renewal" or does it have to be at the renewal date?

3. Is there access to claims experience?

The plan sponsor bill of rights states that you have the right to receive comprehensive reporting of your costs, and the potential drivers of those costs. How are you supposed to help manage your population if you have no idea what's driving their costs? Whether it's a disease management program, a wellness program, or just some up front communications about issues that plague your population, it is impossible to create an effective strategy without detailed claims experience.

4. Are the fees transparent?

You have the right to know what you're paying for and how much you are paying. Do you understand the contracts that are in place with the various vendors? Does your broker provide you with a compensation disclosure? Do you know how the money is being handled and invested? Is there a financial statement you can analyze?

5. Am I shackled to the broker?

If you want to terminate your relationship with a broker, but stay in the cooperative, is that allowed? Is there a non-compete clause that prevents this from happening? Is your contract tied to your broker? Would firing the broker cancel your contract?

6. Is there a possibility of receiving dividends?

You are in a cooperative for several reasons, but mainly you want the best price. What if your group performs particularly well? Do you get a discount or any money back? Or if the entire cooperative runs better than expected, is there any chance of receiving dividends?

7. Are there any performance guarantees?

Entering a cooperative should get you more than just a favorable renewal. It should also provide you with fantastic customer service. In fact, it should provide all members with certain performance guarantees that, if not met, prescribe a penalty to the vendor.

8. Is the cooperative self-funded?

In today's marketplace any cooperative strictly for the benefit of its participants uses a self-funded model. This allows the members to enjoy lower administrative costs and the cooperative to have greater control over it's contracts with providers (thus, lowering costs). The only fully insured contract a cooperative should have is for stop loss, and even then, a big enough cooperative has the size to help self-fund part or all of that too.

Legal Disclaimer

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