Several Tucson health executives are part of a network that's using a $93 million federal loan to set up a unique, nonprofit Arizona insurance company.

With an aim of providing consumers with another insurance choice under health reform, Compass Cooperative Health Network has a pending license to become a not-for-profit insurance company that will be called Meritus Health Partners.

The company hopes to provide about 24,000 Arizonans with coverage in 2014, Jean Tkachyk, a Tucson health executive who is the company's chief operations officer, said Friday.

The federal government has provided $2 billion in loans in 24 states for nonprofit "co-ops" - consumer-oriented and -operated plans - to be set up as part of the new health law. The fiscal-cliff legislation cut off funding for additional federal loans for future co-ops. Meritus will be the only co-op in Arizona through the federal loan program.

Officials expect Meritus to be a choice for Arizonans who purchase insurance through the state's insurance exchange come Oct. 1, when open enrollment for exchanges nationwide will begin. Coverage under those plans begins Jan. 1. The company will begin in five counties, including Maricopa and Pima, with a goal of going statewide.

The exchanges are being set up in all states through provisions in the Patient Protection and Affordable Care Act. Most aspects of the federal law will take effect in 2014.

But one of the first orders of business for Meritus Health Partners will be explaining information about the complex law that Arizonans need to know.

"There is such a need for education," said Tkachyk, who spoke about the new company to the Pima County Workforce Investment Board Friday morning. "We've got to help people understand what to do and when to do it."

Indeed, most of the business, nonprofit and educational leaders who attended Friday's meeting had very basic questions about the law itself, and not the cooperative. They wanted to know the function of the exchange and who would be able to use it.

"We in this room are a group of extraordinarily educated people. We read the paper, we pay attention to the news, we're kind of informed," Tkachyk told the board. "And this group doesn't know much about it. There's just not enough information out there."

Most Arizonans will not need to use the exchange because they will be covered by their employers, by Medicaid, or by Medicare. Some Medicare beneficiaries may go through the exchange to enroll in Medicare Advantage, a Medicare replacement plan.

Tkachyk, former chief financial officer for University Physicians Healthcare, estimates 569,750 Arizonans, including nearly 83,000 in Pima County, will be eligible for federal tax credits to purchase health insurance.

Those tax credits will be provided to individuals and families making up to 400 percent of the federal poverty level who don't have health insurance through employers. That works out to a maximum of $94,200 for a family of four. Small businesses may also purchase insurance from the exchange.

The insurance must be purchased through the exchange to get the tax credit. But Meritus will also be selling policies to people who don't qualify for a tax credit and want to purchase their plan outside the exchange.

Larry Aldrich, former president and chief executive officer of University Physicians Healthcare, is on the Meritus board. The chief executive officer of Meritus is Kathleen Oestreich, the former chief executive officer of University Physicians Health Plans.

Meritus leaders particularly want to reach out to uninsured Arizonans, of whom there are about 257,000 children and 899,900 adults, the Kaiser Family Foundation says.

Loans to create a nonprofit "co-op" health insurer were provided through the health law. Many lawmakers who supported the health-care overhaul wanted a so-called "public option" similar to Medicare but open to all ages. The cooperatives were a compromise. They are regulated by each state's department of insurance, and are directed by their customers with an elected board of directors rather than stockholders.

Meritus has restricted funds so that any money it makes must be reinvested by improving benefits or reducing premiums, Tkachyk said.

Health cooperatives are not new and several successful ones are operating around the country, including Group Health, which is in northern Idaho and Washington, and HealthPartners in Minnesota and Wisconsin.

A health-policy brief from the Robert Wood Johnson Foundation predicts the newest co-ops will face significant financial challenges because the federal funds can't be used for clinical services or to pay for equipment. Meritus must pay back the entire $93 million loan.

"I do think it's a viable company. We have a sound business strategy and the message seems to resonate with providers," Tkachyk said.

"We hope that the company will feel different from the policyholders' perspective."


• More information about Arizona's health exchange:

• Kaiser Family Foundation video explaining the federal health law:

Contact Star medical reporter Stephanie Innes at or 573-4134.