New York Times examines co-ops versus public plan options
September 1, 2009
So What's a Health Insurance Co-op, Anyway?
By Anne Underwood
Stuart Isett for The New York Times Dr. Harry J. Shriver III meets one of the patients of Group Health Cooperative of Puget Sound, one of the nation's larger health co-ops.
If a public insurance option were to be abandoned, it could be replaced by an alternative favored by some moderates like Senator Kent Conrad, Democrat of North Dakota: the health insurance cooperative. Legislators have not spelled out how these plans might work, but health insurance co-ops do have a history in this country. Anne Underwood, a freelance writer, quizzed Timothy Stoltzfus Jost, a law professor at Washington and Lee University who has written extensively on health care policy, including the feasibility of establishing health insurance co-ops.
Q.
What is a nonprofit co-op?
A.
The basic idea is that consumers get together and start a company to produce something that otherwise might not be produced or would be underproduced. Co-ops are a familiar concept in the United States, especially in rural areas. I live in western Virginia, and we belong to an electric co-op that produces our power. Farm co-ops and dairy co-ops are also common.
Q.
So co-ops can be formed to provide health insurance, too?
A.
We had them in the 1930s and 1940s, because the Farm Security Administration sponsored them before we had health insurance. There were 600,000 people in the Midwest who were insured through them. Texas was a big area for them.
Q.
What happened to them?
A.
The Farm Security Administration withdrew support in 1947, and they collapsed. They had a hard time getting going anyway. Two have survived - Group Health Cooperative of Washington and Health Partners in Minnesota. From everything I've read about them, they function reasonably well. But they've basically become like other insurance companies with a few little added bells and whistles for their members.
But one thing that it's important to get straight from the beginning is the difference between insurance co-ops and health insurance purchasing co-ops. There was a real movement in the 1990s to purchase insurance through co-ops. Those are similar to the exchanges that are being proposed. A few of them got going. They were not remarkably successfully, either. The idea was that consumers bargain with insurance companies to buy insurance. They're not insurance providers themselves.
Q.
So what we're talking about are insurance co-ops that would function as insurers themselves.
A.
The argument I make is that it's really hard to start an insurance company. You don't just get a bunch of people together and say, "We're going to start an insurance co-op." The biggest problem is coming up with a network. You have to find doctors and hospitals and negotiate contracts. Most are already locked up by the dominant insurers. They're not going to give you - a tiny co-op - a better deal. That's assuming they'll deal with you at all. The alternative would be to rent a network, but you're basically buying your product from your competitor. There's no way you'll get a good deal there, either.
Q.
What are some of other challenges in setting up a co-op?
A.
You need to establish a brand identity, figure out how to handle claims, develop actuarial expertise, establish reserves, meet state licensing requirements and solvency requirements.
Q.
Does it improve competition in any way?
A.
What you have in the United States now is concentration of insurance markets. You hear this stuff about 1,300 insurers in the United States and all this competition. But just try to get more than one of them to bid on your contract for a health plan in the Shenandoah, where I am. One insurer controls 87 percent of the market in Harrisonburg, Va. That's true in many places. The idea that there are 1,300 insurers and that we have access to all of them is like saying there are 10,000 produce stands in U.S. If there's only one within 10 miles of where you live, that's the one you have access to.
Health insurance is very local. It's very hard to break into an insurance market. The thought that you'll have a few businessmen get together and set up a co-op that will compete with Aetna or Cigna is just dreaming. It's not going to happen.
Q.
So how would a public plan be superior?
A.
If you had a public plan that could use Medicare rates, the infrastructure would already be there. It could use the Medicare network. Providers could always opt out, as they do today. Some doctors won't take Medicare patients. The Energy and Commerce bill with Blue Dog amendments allows the secretary of health and human services to negotiate rates. Any provider who didn't want to be in the public plan could opt out.
The United States government already has brand identity. It could compete. Maybe it would be a lousy competitor and fail, or maybe it would be a great competitor and force private insurers to compete and come up with a product that was more affordable than what they're selling now. I don't see a problem with trying it.
The idea that the public plan will dominate the market, I don't see that. As the president said, we have a post office, Federal Express and U.P.S. I use all three. The idea [of relying solely on private insurers] is like saying we'll abolish the post office and give people vouchers to send letters with Federal Express. That's what we're doing if we don't have a public plan.
Who knows? Maybe some consumers might put together a co-op that would survive. But the idea that co-ops will provide competition in the private market that would have effect on cost is an illusion. We're talking about using taxpayer money to pay money to private insurers without any competition. How crazy is that?
Q.
So what's the appeal?
A.
It's a co-op, a consumer-run business - not the government taking over health care. Second, the idea of a co-op is familiar in the upper Midwest. They have dairy co-ops and electrical co-ops. It's an idea familiar to constituents, and those co-ops work reasonably well for producing certain kinds of goods in certain markets. The problem is, they don't make sense for health insurance.
The argument that we're headed toward government-run, socialized medicine plays pretty well in a lot of conservative parts of the United States. This is an alternative. The problem is, it's an alternative that wouldn't work.
Q.
Would nonprofit co-ops at least help to control costs?
A.
I don't see how it does anything to control costs. I don't see much in the legislation outside of Medicare reforms that will control costs, except for the public plan.
I also see it as a strategy to get a bill through the Senate Finance Committee. The final bill that comes out of conference may look different. I hope so.
The other thing is, nobody has seen the co-op proposal yet.
Q.
Might health care co-ops be structured in different ways?
A.
I did a memo on how you might structure one to work, if you established a national cooperative. If the federal government set up a co-op itself, the co-op could then be set up regionally and funded adequately to get things going. You might be able to come up with a co-op that would in fact work.
But I still think it is a poor alternative to the vigorous public plan.
Q.
Should we be worried that the public plan will fare so well that we end up without private alternatives?
A.
In Germany and Australia, they have competition of public plans and private plans. In fact, what has happened is that the market stabilizes, the public plan provides things some people want, and private plans provide things other people want. What you end up with eventually is a market in which people get what they want.
The Congressional Budget Office predicted in its analysis of the House bill that about two-thirds of people who had the option would go for private market and one-third for public. The vast majority - about 160 million - would stay in employer-covered plans, because the exchange wouldn't be available to them. Probably some people will go with the public option because it's cheaper. Others may think private insurance will offer more care or broader coverage.
The market will sort itself out, just as the market for automobiles sorts itself out. We don't have to all buy top-end cars. In Germany, 50 percent of people go public, and 50 percent private. I think it's unlikely the the public plan would drive private insurers out of business.
