Can Health Coops Do the Job of a Public Plan?

Can Health Coops Do the Job of a Public Plan?

If anyone had any remaining doubts about the daunting politics of health care reform, the last couple of weeks have served as a stark reminder. Congressional Budget Office estimates of the ten-year costs of Senate health bills have caused the GOP to pounce and deficit-wary Democrats to start scaling back their proposals; and despite the fact that recent polls show a sizeable majority of Americans supporting the creation of a public health plan as an alternative to private insurance, Republicans made clear over the weekend that they remain steadfastly opposed to any government option. But perhaps the clearest sign yet of the unpredictable nature of such an ambitious policy overhaul is the approach that is suddenly starting to emerge on Capitol Hill as an alternative to a public plan — non-profit, consumer run health insurance cooperatives.

Despite no public debate on the issue and scant knowledge about how health cooperatives could be set up — not to mention what they would cost, how many people they could insure and, most importantly, how they could bring down the overall cost of health care — the Senate finance committee appears to have tentatively signed on to the concept; a 10-page outline of a plan drafted by the powerful panel included a proposal for such cooperatives — a little understood concept proposed by one Senator just five days before. Senator Kent Conrad, the Democratic finance committee member who proposed the creation of health coops, has admitted he only came up with the idea after giving up hope that bi-partisan legislation was possible if a public health insurance plan was included.

So what exactly are coops and can they fulfill the role that a public health insurance plan is supposed to — namely, provide insurance for those currently not insured and lower overall health costs by, in part, “keeping [private insurers] honest,” as President Obama has said.

Conrad’s basic plan calls for the creation of 50 separate cooperatives, one for each state. Each cooperative would be non-profit, run by a board of directors elected from within the ranks of coop members, and would essentially act as self-insurers, meaning premiums paid in by members would cover the cost of claims. The theory is that coops would be able to offer health insurance at lower costs for individuals and small businesses — who now must pay some of the highest rates for commercial insurance — because they would create larger risk pools. States with smaller populations could join up with other nearby ones to form regional alliances with larger pools of members. State or regional coops would ultimately be self-sustaining, but at least in the beginning, the federal government would have to play a role. Washington would likely have to provide $3-4 billion in seed money for set up costs and initial capitalization, according to a finance committee Democratic aide. The coops would be available on a so-called “health exchange,” where consumers could review and choose from various insurance plan options.

Early adopters of the coop idea point to two existing, large-scale non-profit health care cooperatives as models: Group Health and Health Partners, non-profit HMOs based in Seattle and the Twin Cities respectively. Both coops have solid reputations in the health care policy world, generally offering high-quality care at costs lower than on the commercial market. They do this is by offering both health insurance and health services — each HMO has its own network of staff physicians and free standing hospitals and clinics. This allows Group Health and Health Partners to integrate and better control costs — a huge advantage that state-based health insurance cooperatives would have almost no chance at replicating.

But apart from Group Health and Health Partners, the history of non-profit HMOs is littered with failures. In the 1990s, a similarly set up non-profit HMO in the Washington DC area called Group Health Association was forced to sell itself to Humana, a private insurance company, after its finances deteriorated to the point of insolvency. GHA, which had about 130,000 members, had been plagued by falling membership rolls, strikes by staff doctors and nurses and competition from other HMOs. Before being acquired by Humana, GHA even tried to transform itself into a for-profit HMO to stop the bleeding. A partnership between two non-profit HMOs in New York, Group Health Inc. and Health Insurance Plan of New York, is currently seeking state approval to do the same thing — turn itself into a for profit company to raise capital.

According to Jacob Hacker, a political science professor at the University of California at Berkeley, rural health cooperatives established after the Great Depression were disbanded, in part, because they were badly managed and opposed by the physician community, the same factors that spelled death for GHA. “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],” says Hacker. “They would be weakest when they’re most needed — at the outset.” Cooperative health policies would also not be portable, meaning if you had one and moved to another state, you would need to drop coverage and enroll elsewhere. Rates could also vary dramatically, depending on regional differences in health costs and the size and make up of coop pools.

Assuming state-based health coops could offer lower premium costs by being non-profit and creating large risk pools, an equally crucial question is when Even with federal seed money, setting up 50 coop boards, signing up enough members to make each coop viable and establishing administrative systems to set premium rates and pay claims would not happen overnight. “The principle of eliminating some of the profit motive and placing it with the motive to get value out of care is a good principle,” says Karen Davis, president of the Commonwealth Fund, a nonpartisan health policy think tank. “But there are a lot of ifs and it’s not a strategy for a nation in an economic crisis when we need a solution soon.”

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