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Common Ground, a coalition of religious groups and other organizations, has been awarded two federal loans potentially totaling $56.4 million to start a nonprofit health insurer that would be run by its members.

The money is part of $3.8 billion included in federal health care reform to help start nonprofit health insurers, similar to cooperatives, to compete in the market for individuals and small businesses.

"We've got to try something new," said Robert Connolly, a small-business owner and president of the board of the Common Ground Healthcare Cooperative.

Common Ground was one of seven sponsoring groups in eight states on Tuesday awarded the first loans to start nonprofit health insurers, referred to as CO-OPs, for Consumer Operated and Oriented Plans. The seven groups were awarded $638.7 mil lion in loans.

The loans - contingent on the groups meeting specific performance targets - are to help the CO-Ops with start-up costs and to meet state requirements on reserves for insurance companies.

The loans for start-up costs must be repaid in five years, and the loans for reserves in 15 years. The interest rate, based on a formula tied to Treasury bills, is effectively zero for the five-year loans and less than 1% for the 15-year loans.

The federal health care reform law sets out the goal of funding one CO-OP in each state to increase competition and give consumers an alternative to existing insurance companies.

"They are not looking out for my best interests," Connolly said. "The CO-Op will."

An interesting mix

Connolly, vice president and managing partner of The James Company, a consulting firm that advises churches and other faith-based organizations on fundraising, has been an active and vocal critic of health insurance costs for small businesses.

He pulled together the people and expertise needed for the detailed application for the federal loan - and, in the process, brought together an interesting mix of people.

Common Ground, which also includes some unions and a few small businesses, is the Milwaukee affiliate of the Industrial Areas Foundation, founded in 1940 by Saul Alinsky, a famed community organizer and author of "Rules for Radicals." The organization, based in Chicago, bills itself as the oldest and largest community organizing network.

But the group also has worked with Quarles & Brady, one of the state's largest law firms; Milliman Inc., a national consulting and actuarial firm; and the Benefits Services Group, a benefits consultant and broker in Pewaukee, to start the Common Ground Healthcare Cooperative.

Each agreed to forgo its fees if the cooperative did not get a federal loan.

The health insurer's initial board also includes T. Michael Bolger, the retired president of the Medical College of Wisconsin.

Cathy Mahaffey, executive director of the Farmers' Health Cooperative of Wisconsin, is the interim chief executive. Robert De Vita, a veteran health care executive who has worked for Wheaton Franciscan Healthcare, Ministry Health Care and Marshfield Clinic, where he helped start Security Health Plan of Wisconsin, will be interim chief operating officer.

The Common Ground Healthcare Cooperative initially will operate in 11 counties in southeastern Wisconsin but plans to expand throughout the state in five years.

The key question is how it will compete against industry giants such as UnitedHealthcare, Humana and WellPoint, the parent of Anthem Blue Cross and Blue Shield.

Unlike some states that are dominated by one or two health insurance companies, Wisconsin has a competitive market for insurance sold to individuals and small businesses.

One study found that the individual insurance market is the most competitive in the country.

Common Ground plans to hire consultants to negotiate contracts with health systems and physicians, and it plans to hire a contractor for claims processing and other administrative tasks.

The cooperative also must begin marketing its health plans.

Connolly is confident it will appeal to small businesses.

"I have been talking to them for two years," he said.

Dan Stemper of T.H. Stemper Co., which sells church supplies, is among the supporters.

"My goal" is " just to stop the bleeding," he said.

The third-generation family business spends almost $15,000 a month for health benefits for eight employees and their families, Stemper said.

Common Ground Healthcare Cooperative hopes to insure 10,000 people in 2014 and 20,000 in 2015.

It has budgeted $3.4 million for its first year and $4 million for its second year.

"We intend to keep it lean," said Mahaffey, the interim chief executive.

The federal law is projected to bring 13 million people into the insurance market for individuals and small employers by providing subsidies for people with low-to-middle-class incomes to buy health insurance and requiring almost everyone to have health insurance.

It also creates online marketplaces, or exchanges, where individuals and small business can compare and shop for health plans.

Both are expected to create opportunities for new health plans.

The Common Ground Healthcare Cooperative will receive the federal money even if federal health care reform doesn't survive legal or political challenges.

Connolly said the cooperative would still go forward but acknowledged it would be much harder.

The provision to help start cooperatives was included in the health care reform law as an alternative to a national, government-run health plan - the so-called public option.

"The question is whether they can get over the hump and compete," said Len Nichols, director of Center for Health Policy Research and Ethics and profess of health policy at George Mason University.