Comment & Debate
Merriam-Webster defines a cooperative as “an enterprise or organization owned and operated for the benefit of those using its services.” In the American health care reform debates, non-profit health insurance cooperatives have been proposed as a third alternative to traditional private health insurance and newly proposed public health insurance. Cooperatives exist in many forms, already providing many Americans with phone, electricity, credit union loans, and other services. In health care, the Group Health Cooperative in Washington state and its 550,000 members, along with HealthPartners, are being examined as models for a proposed program to subsidize and encourage health insurance cooperatives. The main idea is to provide around 47 million uninsured and struggling Americans with an alternative to private health insurance. The cooperative proposal also come about in large part due to some challenges in generating widespread public and political support for a public health insurance option. Senator Kent Conrad (ND-D), a Democratic Finance Committee member, original proposed the idea in late July, as the public option became increasingly contentious. In this sense, it is considered by many to be a third-way compromise, particularly because it is neither a government program nor a for-profit option. And while many see it as a good alternative to a “public insurance option”, others see it as a wrongheaded distraction from a more bold and robust government program. Moreover, many argue that health insurance cooperatives cannot be expanded as quickly and robustly as a government-program. Others argue that the government should subsidize cooperatives in some form, but only in addition (not as a substitute) to building a public health insurance option along-side private health insurance. Certainly, the debate has garnered national and international attention, with dozens of pro and con arguments from hundreds of different sources.
Senator Kent Conrad, a ranking member of the Senate Finance Committee and the figure originally proposing co-ops, said co-ops “have some of the strengths of public option in that they are not for profit and will provide competition for the insurance companies. On the other hand, it meets some of the objections from others who don’t want a government-run plan, because co-ops are membership-run and membership-controlled, not government-controlled.”
The CEO of HealthPartners, Mary Brainered, says that the health insurance co-op has an advantage because it is not beholden to shareholders. “That means that their primary allegiance and accountability is to that membership base and customer base. Making sure health care is affordable is a very big deal to a co-op. Having low administrative costs — there’s no value to our membership in having high administrative fees, so a big focus is on putting the dollars into health care and not into administration.”
The case for co-ops is simple: we don’t have enough non-profit insurers. Let’s encourage the creation of more of them. This might be wrong. But the potential upside is considerable and the potential downside is negligible.”
While many social entrepreneurs may find, in the goodness of their hearts, the will to start a non-profit co-op, most people are not willing to invest the initial and sustained effort in something that does not provide increasing returns and profits over time. This is simply human nature, and it places a significant cap on the the potential for co-ops to scale widely and successfully. Indeed, this is why only two major health insurance co-ops exist in America – Group Health and Health Partners – instead of hundreds of them across the nation. As long as co-ops continue to be non-profits, they will not be able to spread widely and help solve the problem of 47 million uninsured Americans.
The for-profit interest is very important in driving efficiency within organizations, as it offers administrators the incentive to cut costs and increase efficiency so as to increase revenues, profits, share-holder confidence, and administrative fees. Co-ops do not have the same interest in cutting-costs and creating efficiencies, so will be less efficient and more costly.
“Our health-care system needs real reform [not co-ops]. We need to abolish the unfair tax that favors employer-sponsored insurance over self-purchased insurance. We need to foster a more vibrant private market with greater competition and choice. We need to make prices transparent and give consumers more freedom to pursue health-care value.”
Kent Conrad (D-ND), head of the Senate Finance Committee: “The strength of this proposal is that it accomplishes much of what those who want a public option are calling for — that is, something to compete with private for-profit insurance companies.”
President Barack Obama said in Colorado in mid August, 2009: “The public option, whether we have it or we don’t have it, is not the entirety of health care reform.” Later that same day, Secretary of Health and Human Services, Kathleen Sebelius, told CNN that the government run health insurance was “not the essential element” of health care reform. “There will be a competitor to private insurers,” Sebelius added. “That’s really the essential part, is you don’t turn over the whole new marketplace to private insurance companies and trust them to do the right thing.” [But, these statements made clear that a public option is not essential, and that a co-op could achieve similar goals of adding competition to the marketplace for health insurance.
“I’ll say that I think [co-ops are] a pretty good idea, but it stands on its own merits completely apart from the merits of a public plan. In other words, there’s no reason we shouldn’t have co-ops and private plans and a real public plan. Medicine has always been a mix of state, non-profit, and for-profit actors and I think it’s worth broadening the mix of insurance options available to ordinary people.”
While it is entirely true that co-ops are a great option, and should be encouraged, they are not a substitute for a national insurance plan. This has a lot to do with the fact that co-ops simply cannot scale as well as public insurance to solve the problem of millions of uninsured Americans. As House Speaker Nancy Pelosi (D-Calif.) said in August of 2009, “If someone thinks a co-op can work for their state, let them go and do it. [But, they are no substitute for public insurance].”
In reflecting on reforming the United States health care system, it is important to look abroad for examples. Interationally, there are virtually no examples of successful national systems based on co-ops. Public health insurance, conversely, has been very successful world wide, and is a part of virtually every industrialized nations’ health care systems – almost all of which rank above the United States in World Health Organization rankings (the United States ranked 37th [last among industrialized nations] in these rankings). Based on these proven examples, it would be wise to implement a public insurance plan, not a co-op system.
ale University professor Jacob S. Hacker, argues that efforts to push health care co-ops are meant “to kill the public plan and, with it, the prospect of an effective competitor to consolidated insurance companies that have too often failed to provide affordable health security.”
Sen. Kent Conrad (D-ND), a ranking member of the Senate Finance Committee who originally proposed the co-op idea: “I believe they’re a good idea because they can provide competition to for-profit insurance companies, and one of the things we need in the system is more competition.
Sen. Kent Conrad (D-N.D.): “the intent is for the co-ops to become self-sustaining entities—supported, owned and governed by their own members.” The fact that they are self-sustaining in this way makes them, in the long-run, a very scalable model, as they can generate an independent stream of revenues. This compares favorable against a government-run public insurance option, which is dependent on taxpayer funding and the whims of government budget allocations. In this sense, co-ops offer a good competitive alternative to private health insurance companies.
It is not a necessary factor for individual co-ops to be able to scale. Instead, if the model itself can scale, but in a decentralized and more community-focused way, the model can work very well in filling the gaps left by the private insurance industry. And, in this sense, co-ops can compete well on a local level.
Darla Andrews, a member of the Minneapolis-based Health Partners, was reported saying in an August 2009 CNN article: “I like the small community feel of here. It’s more personal attention.” Large insurance companies and bureaucracies lose their community feel very easily. Co-ops that scale at a local level can compete more effectively with the idea that they are more community-oriented and easy to deal with in this regard.
Sanjay Gupta said on Anderson Cooper 360 in August of 2009: “looking at a lot of these historical knowledge of co-ops, unless you get scale — hundreds of thousands of people participating — it is hard for a co-op to compete against a private insurance company, which is why the people who are such supporters of the public option are crying foul. They are saying, look, the public option was a national option, it had scale. Hundreds of thousands if not more people. That could compete. Could a co-op even at a regional level compete?”
A public plan can scale within two to five years, with massive injections of public funds. Health insurance co-ops cannot do this, and will take many years and even decades to scale to the necessary level, and even this is not assured. Paul Hazen, president and chief executive officer of the National Cooperative Business Association, the leading co-op trade group, said that any given co-op will take 10 to 20 years to get up and running successfully and at scale.[9] On this note, Jacob Hacker, a famous political science professor and health care expert at the University of California, wrote, “The history of cooperative is that it’s very hard to set these things up, and while we’re trying to set them up, there’s not going to be accountability and pressure [on private insurers]. They would be weakest when they’re most needed — at the outset.”
This is an extension of the above argument that co-ops have trouble scaling, but focuses on the outcome of solving the massive problem of around 47 million uninsured Americans. If health co-ops cannot scale widely and robustly to compete with health insurance companies, they will not achieve the ultimate goal of insuring millions of Americans. Nor will it help cut costs and offer better packages to those that can’t afford the insurance they have or can afford only bad insurance.
“cooperatives would lack the scale and authority to negotiate lower rates with drug companies and other providers, collect wide data on outcomes, or effect major change in the system.”
“The co-op concept is also longstanding and widespread in the insurance sector, where it is known as a “mutual” insurance company. Thus, such large well-known companies as Mutual of Omaha and Northwestern Mutual Life are in fact cooperatives. There are also successful smaller, niche-market mutual insurers, such as Church Mutual (which offers lines of property, casualty, and liability coverage for member religious institutions) and Jeweler’s Mutual (which offers similar coverage lines for members engaged in making or selling jewelry). […] When it comes to health care, a group that “organizes” coverage provided by insurers could be structured as a co-op, and a company that provides insurance could also be structured as a co-op. Both could be present in the same market.”
North Dakota Democrat Kent Conrad said in a June 2009 interview with Ezra Klein: “the co-op model has proven very effective across many different models. Ocean Spray in the cranberry business, and Land of Lakes in the dairy business, and Puget Sound in the health care business.”
Sanjay Gupta said on Anderson Cooper 360 in August of 2009: “looking at a lot of these historical knowledge of co-ops, unless you get scale — hundreds of thousands of people participating — it is hard for a co-op to compete against a private insurance company, which is why the people who are such supporters of the public option are crying foul. They are saying, look, the public option was a national option, it had scale. Hundreds of thousands if not more people. That could compete. Could a co-op even at a regional level compete?”
A public plan can scale within two to five years, with massive injections of public funds. Health insurance co-ops cannot do this, and will take many years and even decades to scale to the necessary level, and even this is not assured. Paul Hazen, president and chief executive officer of the National Cooperative Business Association, the leading co-op trade group, said that any given co-op will take 10 to 20 years to get up and running successfully and at scale.[9] On this note, Jacob Hacker, a famous political science professor and health care expert at the University of California, wrote, “The history of cooperative is that it’s very hard to set these things up, and while we’re trying to set them up, there’s not going to be accountability and pressure [on private insurers]. They would be weakest when they’re most needed — at the outset.”
This is an extension of the above argument that co-ops have trouble scaling, but focuses on the outcome of solving the massive problem of around 47 million uninsured Americans. If health co-ops cannot scale widely and robustly to compete with health insurance companies, they will not achieve the ultimate goal of insuring millions of Americans. Nor will it help cut costs and offer better packages to those that can’t afford the insurance they have or can afford only bad insurance.
cooperatives would lack the scale and authority to negotiate lower rates with drug companies and other providers, collect wide data on outcomes, or effect major change in the system.”
Sanjay Gupta: “If you look at the co-op across the board they have a couple of things going for them. They are not for profit, for example. They have low administration fees, overhead fees. As a result they may be able to have lower premiums”.[13]
William Oemichen, president and CEO of the Cooperative Network, a cooperative trade association in Minnesota and Wisconsin – the two states with the most cooperatives in the country: “The large majority of [health insurance co-op] members report paying the same or significantly less than the insurance before. […] This can be replicated on a national basis.”
Q: How could a co-op offer a better alternative? […] A: Co-ops presumably would reduce or eliminate some costs, including profits, to compete effectively with private insurers. […] Q: Would that drive insurance companies out of business? […] A: Unclear. Proponents say co-ops would force private insurers to be more efficient and fair.”
“Despite efforts to negotiate lower premiums, cooperatives have only been able to offer premiums that are comparable to those in the general small group market. The cooperatives we reviewed typically did not obtain overall premium reductions because (1) their market share provided insufficient leverage, (2) they could not produce administrative savings for insurers.”
“Rates could also vary dramatically, depending on regional differences in health costs and the size and makeup of co-op pools.”
“As a concept, health insurance co-ops are attractive because ostensibly, they would be run by the consumer, for the benefit of the consumer, and with no profit motive, premiums theoretically should be cheaper. But in practice, we are liable to get a much different animal with the same kind of inefficiency and administrative waste we see in government run health insurance entities like Medicare or Medicaid.”
To access the second half of this Issue Report Login or Buy Issue Report
To access the second half of all Issue Reports Login or Subscribe Now
