LEWISTON — Maine’s new health insurance marketplace, where people sign up for 2014 health benefits under the Affordable Care Act, almost formed as a monopoly, entirely controlled by Anthem Blue Cross Blue Shield.

Customers purchasing subsidized plans on the marketplace would have been limited to choosing between Anthem offerings if not for a series of unlikely events. Maine’s sparse and largely rural population would have made it a prime candidate for a monopolistic market, experts say.

Instead, Maine is one of 10 states with two insurers, thanks to a $64.6 million federal loan to form a co-op under an often-overlooked program created by the Affordable Care Act. In most of the states, three or more insurers offer plans that customers can choose from. So far, 73 percent of Maine consumers are choosing MCHO over Anthem, according to co-op officials.

“Without the existence of this co-op, there would be no competition on the marketplace. There would be no choice,” said Kevin Lewis, CEO of the new Lewiston-based co-op, Maine Community Health Options.

If Anthem had been the sole insurer, Maine would have joined New Hampshire and West Virginia as the only states with one insurance provider in the marketplace. Those shopping for insurance on www.HealthCare.gov are often self-employed or part-time workers who earn too much to qualify for MaineCare but were previously priced out of the individual insurance market and often were uninsured.

While nationally the co-op program has been slashed from $10 billion to $3.8 billion since its formation in 2010, Maine applied for funding early on and is one of 23 states to launch a cooperative, a little-understood program whose name evokes images of agricultural organizations and farmers’ markets. Originally, the co-ops were slated to appear in most, if not all, states.

Under the ACA, the co-ops are designed to be newly created competitors in the marketplace, a counterpoint to traditional for-profit insurance companies. Some predict the co-ops will flop and default on their loans, while others herald the co-ops as a potential transformative force in the individual and small group insurance market.

Maine ended up with a co-op only because Lewis and another health care industry executive shifted gears in 2011 and applied for the federal loan, winning funding in 2012 in an intensely competitive bidding environment.

“We had a eureka moment,” said Robert Hillman, chief operating officer for Maine Community Health Options, located downtown in the historic Bates Mill complex. Hillman and Lewis had been working on a managed care program to potentially compete for a state Medicaid contract. When the LePage administration in 2011 seemed less interested in that program, the pair noticed that it shared similarities with the co-ops that were to emerge under the ACA.

JUMPING IN

They jumped in, and in two months completed a 300-page federal application while persuading hospitals and doctors to back their efforts.

“We had an immediate transfer of energy to this co-op idea,” said Hillman, a former executive with Medical Network Inc., which forms provider networks for insurance companies.

“It was a perfect solution,” said Lewis, who previously headed up the Maine Primary Care Association. They survived a four-hour grilling in Washington, D.C., by consultants for the U.S. Department of Health and Human Services in November, 2011, and many follow-up requests for information before being granted the $64 million loan in March, 2012.

Lewis said he knew of no one else in Maine who was working on a co-op application, and they were only able to complete the project within a few months because they were already working on a similar idea. Since much of the groundwork had already been completed, they were among the first to apply. The co-ops were considered political middle ground after the public option was removed from the ACA during congressional bargaining in 2009. The public option would have been government-run insurance on the marketplace. The co-opsmade it into the final law, but their funding has dwindled during subsequent budget battles.

The Maine co-op takes up the third floor of the 1850s-era former textile building and is renovating the second floor for a 2014 expansion.

While the co-op has been in the news frequently over the past year connected to the launch of the marketplace, the concept is murky to many.

The main difference is that a nonprofit co-op’s mission is to provide services for its members, which is anyone who buys MCHO insurance. The Maine co-op’s eight-person governing board must be controlled by its members, who always must make up a majority of its board.

In contrast, private, for-profit insurance companies serve their customers, but also shareholders demanding maximized profits.

The focus on its membership is what makes co-ops unique, and many states like Maine that have a co-op will put increased pressure on traditional insurance companies to provide good customer service or risk losing customers, health care experts say.

NO GUARANTEE OF SUCCESS

But not all agree that the co-ops will succeed. Some health care experts predict that the co-ops, starting operations under a mountain of debt and barred by law from using loan money on marketing, will default on their federal loans.

Vermont refused to grant its co-op a license to operate in part because of concerns about the co-op’s financial viability, too-rosy predictions of membership and its debt-to-asset ratio. The enterprise folded this fall, after controversies over conflict-of-interest issues and an uproar over the $120,000 salary paid to its board chairman. The Maine co-op’s board members are not paid.

The Maine co-op secured the $64.6 million federal loan with $500,000 in seed money, although now it has raised $4 million in private money. Still, it’s operating almost entirely on the federal loan.

Eric Cioppa, superintendent of the Maine Bureau of Insurance, said state actuaries pored over MCHO’s application, found it to be solvent and granted the company a license to do business in Maine.

“Any entity we license, we want to be financially strong,” Cioppa said.

Cioppa said just because MCHO is operating with a federal loan does not mean it’s a risky venture. He said the loans include a number of protections to insulate policyholders from risk and keep the co-ops running even if business does not go as well as predicted. He said the bureau would not have licensed MCHO if it didn’t believe the company would be able to pay all of its claims by customers.

Lewis said the federal loan will be repaid with premiums funded by its membership, and that as long as their conservative predictions come true on enrollees, MCHO will be able to make the loan payments. The co-op has 42 employees, and expects to hire about 10 additional workers in 2014, as long as the HealthCare.gov website is fixed. Lewis said the loan gives them some cushion if enrollees come in low due to continued problems with the site.

“Every employee we hire affects the premiums we can charge. We’re mindful of that every day,” Hillman said.

But while Hillman said he and Lewis are optimistic it will work, he also didn’t downplay the co-op’s challenges.

“There’s a reason there’s not a lot of start-up insurance companies. It’s a tough place to operate, in a highly-regulated industry that takes a lot of capital,” Hillman said.

About 50,000 to 75,000 Mainers are expected to sign up for insurance on the marketplace, according to Maine-based Consumers for Affordable Health Care, a nonprofit consumer advocacy group.

It’s not known how many would choose MCHO versus Anthem. Lewis has estimated 15,000 MCHO customers as a conservative guess for 2014.

Hillman and Lewis said the fact that MCHO is a Maine company organized as a nonprofit, instead of a multibillion-dollar national insurance company, will help tilt customers toward MCHO.

“We think that will resonate with people. We believe it already has,” said Hillman, who earns $167,000 with MCHO, according to federal nonprofit forms the group filed in 2012. Lewis earns $131,000.

‘PLUSES AND MINUSES’

Cioppa said both the nonprofit co-op and the for-profit companies have “pluses and minuses,” and one way of operating is not inherently better than the other.

“The (for-profit) insurance companies have easier access to capital, they’re a larger entity and can employ economies of scale better, and they have more of an ability to spread their expenses out,” Cioppa said.

Anthem officials have emphasized the company’s experience in the insurance industry.

While Anthem officials declined to comment on the co-op, Eric Jermyn, Anthem’s director of small group sales, said in a written statement that Anthem is positioned to provide “high quality, affordable” care to its customers, while improving access to primary care.

Barbara Smith, a Washington health care consultant, and a founding U.S. Department of Health and Human Services director of the program that created the co-ops, predicted that the co-ops will be financially solvent.

She said some of the co-ops may have to restructure their loan agreements with the federal government, but that’s because there’s so many unknowns, especially how many customers they will have. And Smith said that redoing the loans does not mean the co-ops won’t work.

“The reason why people are saying there’s going to be so many defaults is because of the government definition of default, which is changing the terms of the original loan,” Smith said. “But if you go by the common definition of default, which is the co-ops closing their doors, I don’t believe that’s going to happen.”

Since the marketplace is so new, there does not appear to be price studies about the impact of co-ops on the insurance market completed by a neutral source.

MCHO has a lower base rate than Anthem for most plan offerings on the marketplace, according to the Bureau of Insurance Web site, but the dizzying array of cost factors for plans, including deductibles and co-insurance rates, make it difficult to draw any sweeping conclusions about costs.

But regardless of price, Smith said, she views the co-ops as “bringing a different dimension to insurance.”

“Most have components where they’re encouraging preventative care that goes beyond the requirements of the ACA,” she said.

For instance, Lewis said MCHO will provide financial incentives for people to treat diabetes, hypertension, asthma and COPD. The co-op will offer plans that limit out-of-pocket costs for people with those diseases to a few hundred dollars per year, as opposed to $1,000 or more per year under a typical insurance plan.

Lewis said it gives people an incentive to use their benefits and stay healthier, rather than scrimping on care to save money, such as cutting their pills in half or curtailing physical therapy appointments.

Joe Lawlor can be contacted at 791-6376 or at:

jlawlor@pressherald.com

Twitter: @joelawlorph