TESTIMONY OF WILLIAM L. OEMICHEN

Before the:
Legislative Council Special Committee
on Health Care Reform Implementation

September 21, 2010

Good Morning Chairpersons Erpenbach and Richards and Legislative Council Special Study Committee members.  I am Bill Oemichen, President & CEO of Cooperative Network, a Wisconsin-based trade association of more than 600 cooperative businesses owned by 6.4 million residents of Wisconsin and Minnesota.  I previously served as our state’s Consumer Protection Administrator from 1996-2001 and the protection of consumers has been one of my primary life goals.  Cooperative businesses are different from many of the companies you might think about because we are owned by our members who purchase our products and services or by the workers who produce those products and services.  Any net margin, or profit, made by the cooperative is owned by our members and is usually distributed back through lower prices or through a patronage distribution.  Cooperatives, like all other businesses, must be profitable to remain in business.

Wisconsin Has a Rich Cooperative History.  Wisconsin has a rich cooperative history.  We are the second leading cooperative business state in the nation due to the 865 cooperatives headquartered here according to the Wisconsin Department of Financial Institutions, number 865.  Only Minnesota has more cooperative businesses with 1,012 according to the Minnesota Secretary of State.  Cooperatives operating in our state range in size from Fortune 500 companies like CHS, Inc., Land O’ Lakes, and Ocean Spray to locally-based cooperatives like the many credit unions in Madison, Union Cab, Willy Street Cooperative and Isthmus Engineering.

Cooperative Businesses Follow Common Principles.  Cooperatives share seven common principles that define our businesses:

1. Voluntary and open membership;
2. Democratic member control;
3. Members’ economic participation;
4. Autonomy and independence;
5. Education, training and information;
6. Cooperation among cooperatives; and
7. Concern for community.

Our members principally believe that together we achieve more than we can independently of each other and we are very much focused on the idea of “self help” rather than on government financial support.  Our member ownership structure and cooperative principles make our businesses uniquely focused on what our member-owners want us to provide and bettering the communities in which we operate.

Health care reform is an important issue that has been not only talked about by our state’s cooperative community, but we have also worked hard to address the concerns raised by our members and the greater Wisconsin community about the need for access to affordable, quality healthcare. 

The Four Types of Wisconsin Health Care Cooperatives.  Our state is home to four different types of member-owned health care cooperatives: 

1. HMO or staff model where the cooperative owns to hospitals,
    clinics and directly employs the physicians and other medical care workers;

2. Self-insured where the cooperative provides a health care network of providers,
    reprices claims and provides other services for self-insured businesses;

3. Purchasing alliances where the cooperative brings together self-employed,
    small and large businesses to negotiate with insurance companies, doctors and hospitals; and

4. Pharmaceutical drug purchasing cooperatives.

In addition, the Rural Wisconsin Health Cooperatives is a cooperative or primarily rural hospitals who band together for the purchase or products and services such as physician accreditation and information technology.

Wisconsin Cooperative Law is Unique in our Nation.  Our state law was first signed into law by Governor Oscar Rennebohm and is unique among the American states.  The law was modernized earlier this year by legislation sponsored by Senator Jon Erpenbach (D-Middleton) and Representative Jon Richards (D-Milwaukee).  Overall, the law has authorized the creation of cooperatives such as the 64,000 member Group Health Cooperative of South Central Wisconsin, the 84,000 member Group Health Cooperative of Eau Claire, the 1.3 million member HealthPartners HMO, the 83,000 member The Alliance and the 240,000 member WisconsinRx cooperative.  The former cooperatives operate as health maintenance organizations and employ the physicians and own the hospitals and clinics.  The Alliance acts as a cooperative for a number of self-insured businesses in primarily the southern part of Wisconsin and provides the hospital and physician network for its members, along with the ability to reprice claims.  WisconsinRX is a pharmacy purchasing cooperative that operates here and in the state of Alaska.  Wisconsin, Minnesota and Washington State are the three states in which cooperatives overall play a significant role in the state’s health care landscape.

The Health Care Challenge to Cooperatives.  The Wisconsin Legislature added to the original cooperative health care law beginning in 2003 to allow for creation of cooperative health care purchasing alliances.  This legislative initiative resulted from Cooperative Network hearing from many of its members that access was a very important problem, particularly from the perspective of the state’s vitally important $54 billion dairy industry.  Surveys by the University of Wisconsin-Madison and the Wisconsin Farm Credit System made clear that most dairy producers were buying high deductible, high premium and low benefit plans because that is all they could purchase as individuals.  You might call these “catastrophic health care plans.”  We then learned that the primary reason three dairy producers per day were leaving the Wisconsin dairy industry was because of health care and not because of low dairy prices, prices which in 2003-2003 were near record lows.  In short, the foundation of the state’s dairy industry – the producer – had no bargaining power as an individual producer.

This lack of bargaining power certainly impacted, access, affordability, and coverage negatively.  To state just one important example, we learned back then that most dairy producers were not covered by “24-hour coverage.”  This means the moment the producer stepped off their back porch to “go to work” in the barn, they no longer had health care coverage.  Even worse, the producer didn’t know they were operating without this important coverage.

The Co-op Care Legislation.  In response, we approached Senator Jon Erpenbach and asked him to write legislation called “Co-op Care”, that would create a new Wisconsin Statutes Section 185.99 within the existing cooperative law that would allow for the creation of cooperative health care purchasing alliances.  We are grateful he worked hard on the legislation with principle sponsors state Senator Sheila Harsdorf (R-River Falls) and now former state Representative Curt Gielow (R-Mequon).  The resulting legislation unanimously passed the Legislature and was signed into law by Governor Jim Doyle in December of 2003.  The law was subsequently amended in 2005 and 2006 to remove a cap of five cooperatives and to make clear that the members were becoming a large group under state insurance regulations.

The Structure of Health Benefit Purchasing Alliances.  The Co-op Care law of Section 185.99, “Health Benefit Purchasing Cooperatives,” allows for the creation of cooperative health care purchasing alliances so that individuals and small groups can band together as a larger group for purchasing power purposes.  The law is relatively simple, but is meant to provide a skeletal framework so that insurers understand the law’s thrust.  The law allows for purchasing groups to band together to purchase a fully-insured contract of insurance.  The law does not speak about self-insurance.  The group may purchase their health insurance as a large group under a single group policy.  The law provides that the insurance risk of all members is pooled and that members are actively engaged in designed their own health care benefits. 

The cooperative and the insurer must contract for a term of three years.  This is intended to ensure a more stable long-term relationship between the cooperative and the insurer.  In return, the member must commit to remaining in the cooperative for the three year period by providing an upfront capital payment that is returned to the member if they remain in the cooperative for the full three year time period.  This provision ensures the member understands they have “skin in the game” and remains committed to the cooperative in the long term.  This is a fairly normal commitment one makes to join in a cooperative since cooperatives and their members are focused on long term success since they depend on the cooperative for a particular good or service unlike other types of businesses where the purchaser has no stake in the long term success of the company.

From the passage of Co-op Care in 2003, ten cooperative have obtained approval from the Wisconsin Office of the Commissioner of Insurance to operate in specific territories.  These cooperatives serve small employers in various parts of the state, specific industries like agriculture, school districts, and medical workers.  While I am not privy to the competitive details of a number of these cooperatives, I can talk about the FHCW and its experience.  Cooperative Network worked closely with partners to launch the Farmers’ Health Cooperative of Wisconsin (FHCW) in 2007.  This cooperative now includes about a quarter of the state’s dairy industry, is in its fourth year of business, and continues to grow.  As already mentioned, the dairy industry suffered from access issues.  The cooperatives have addressed these issues by offering what we consider a higher quality plan at an affordable price.  Some of these additional benefits include:

1. A choice of low or high deductible plans;
2. 24-hour coverage;
3. Pharmaceutical drug coverage;
4. Wellness and preventative coverage; and
5. Dental coverage.

These are all coverages that were not typically included in insurance plans offered to agricultural producers.  The producer “wins” even if they don’t become a member because the FHCW immediately noted other plans started offering the all–important 24-hour coverage coincidentally at the time of our 2007 launch as well as other helpful benefits, often at no additional cost. 

What is the measure of the impact of these cooperatives?  I can provide for you the results of a third party study done of the FHCW.  That study found that 81.7% of the cooperatives’ members either saw a reduced premium or an unchanged premium while 65.4% said their benefits had increased.  Moreover, over 90% of the cooperatives’ members have participated in annual health risk assessments.  In response, the cooperative has seen re-enrollment rates in the high 90’s during its lifetimes and annual premium increases of less than 10%.

Other health care purchasing alliance cooperatives are under development, including the Wisconsin Health Cooperative, the cooperative referred to by witness Bob Connelly of Common Ground during your initial committee meeting on August 19.

These health care purchasing alliance cooperatives only address one part of the health care reform issue, that of providing consumers with greater control over their health care purchasing decisions.  And, it is important to note, these purchasing alliances are successful only to the extent that insurers are willing to provide a contract of insurance.  We are fortunate several insurers have stepped forward to be such partners. 

Consumer Oriented and Outreach Plans.  In June, following nominations by the four U.S. senators from Wisconsin and Minnesota, I was honored to be appointed by the U.S. Comptroller General as one of fifteen members of the Advisory Board to the Secretary of the U.S. Department of Health and Human Services for the Consumer Oriented and Outreach Plan (CO-OP) provisions of the Patient Accountability and Affordability Act.  I will note at the outset of this section, that Tim Size, the Executive Director of the Rural Wisconsin Health Cooperative in Sauk City, a cooperative of a number of Wisconsin hospitals, has also been appointed to this advisory board.

I was pleased to also be invited to appear before U.S. Senate and House Committees on health care reform during the past several years.  As you might recall, there was significant interest in Congress for the creation of health care cooperatives at the federal level as a middle ground between those who sought more government involvement and those who advocated for little or no government role.  While many of those earlier provisions were not included in the Patient Accountability and Affordability Act, some portions survived in a more limited fashion in what is referred to as the CO-OP provision. 
This new federal provision provides $6 billion in federal grants and loans to start-up nonprofit, and not necessarily cooperative, health insurers.  These nonprofit insurers must meet the following requirements:

(1) Become operational after July 16, 2009;
(2) Cannot be “sponsored” by a governmental agency;
(3) Governance of the nonprofit insurer must be “subject to a majority vote of its members;
(4) Governance documents must “incorporate ethics and conflict of interest standards
protecting against insurance industry involvement and interference”;
(5) The organization must “operate with a strong consumer focus, including timeliness,
      responsiveness, and accountability to members”;
(6) The profits must be used to “lower premiums, improve benefits,
      or for other programs intended to improve the quality of health care delivered to its members”; and
(7) Must meet all state insurance law requirements.

The insurers may establish a “private purchasing council” to enter into “collective purchasing arrangements” that “increase administrative and other cost efficiencies, including claims administration, administrative services, health information technology and actuarial services.”  However, please note these insurers are covered by the nation’s antitrust laws. 

Our Advisory Board is expected to begin meeting regularly with the U.S. Department of Health and Human Services beginning next year.  I would certainly recommend this Legislative Council Study Committee to consider encouraging creation of such a nonprofit insurer in our state so that it may apply for some of the $6 billion in grant and loans may available by the federal law, and by doing so, increasing competition.