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The Healthcare Co-op: Believe It, It’s Not Butter

Friday, October 30, 2009

If healthcare overhaul legislation including a public plan fails to pass, Democrats could fall back on a homespun idea from the heartland: healthcare cooperatives.

Senate Majority Leader Harry Reid is putting a public plan in the health reform legislation that will soon hit the Senate floor. Do not be surprised if it lands with a thud. Senator Reid might not be able to muster 60 votes for this idea, and he might not even get 50. If that happens, Democrats could fall back on a homespun idea from the heartland: healthcare cooperatives.

What could be easier? Getting coverage through co-ops will be as simple as buying butter. That’s the message Senator Kent Conrad (D-North Dakota) spread in an effort to gain public support for his alternative to the public plan. He sold it to the Finance Committee in the bill passed last week. With references to household brands such as Land O’ Lakes, ACE Hardware, and REI—all established cooperatives—Senator Conrad has tried to calm Americans’ nerves about a seemingly unfamiliar business model that he has marketed as the foundation for bipartisan compromise on a healthcare overhaul.

But the co-op proposal still has many Americans scratching their heads, and rightly so. Portraying these co-ops and those of Conrad’s healthcare variety as two birds of a feather is not very helpful, largely because they look about as much alike as a pigeon and a peacock. Indeed, approximately 30,000 businesses structured as cooperatives exist in the United States, but they come in several shapes and sizes and differ in significant ways.

Nearly 30,000 businesses structured as cooperatives exist in the United States, but they come in several shapes and sizes and differ in significant ways.

To be sure, all cooperatives are member-owned and governed. Any profits they earn go to the members themselves, in one form or another. Beyond this common thread, though, similarities are harder to find.

There are purchasing cooperatives, where individuals or companies bargain collectively for goods and services to get better prices (think ACE Hardware); worker-owned cooperatives, where the employees also serve as owners of the business; producer cooperatives, where members join together to market their products (Land O’ Lakes, for example); and consumer-owned cooperatives, where the customers own the business.

According to the National Cooperative Business Association, there are only five known consumer-owned health plans like the ones Senator Conrad proposes. These organizations look like any other health insurance company, issuing benefits to policyholders for a premium. But they have a few distinguishing features: they are all nonprofits and operate mostly as managed-care plans, which control costs in part by limiting the use of health services. They also choose their leadership through policyholder elections.

This cocktail of traits does not make health co-ops different from other health insurance companies in any significant way. First, over 40 percent of the privately insured population is already covered by nonprofit health plans. While nonprofit status shields insurers from the demands of stockholders, it also makes it difficult to raise financial capital—one reason many previously nonprofit Blue Cross Blue Shield plans have switched to for-profit status.

Co-ops have a few distinguishing features: they are all nonprofits, operate at least in part as managed-care plans, and choose their leadership through policyholder elections.

Second, the public never embraced the older managed-care model that was supposed to solve our health cost problem during the Clinton overhaul era. Patients did not like going through a disembodied voice on the telephone—the “gatekeeper,” in managed-care terms—to get permission for hospital stays or health services. With the economic boom of the 1990s, employers dropped these managed-care plans as employee resentment over this style of insurance grew. There is little reason to believe that Americans will be more accepting of this approach now. Finally, consumer ownership sounds more significant in theory than it is in practice—only 10 percent or so of the Minnesota-based co-op HealthPartners’ eligible contract-holders participate in board-member elections each year.  

The five healthcare co-ops have some selling points: reputations for a strong consumer focus and high-quality care, and in some cases low administrative costs as a result of substantial investments in electronic health records. But these features are not exclusive to consumer-owned healthcare co-ops, and are not guaranteed.

People, including Senator Conrad, are confused about health co-ops. They are not charitable organizations. If they are going to work, they have to act like health insurers. That means insurance forms, rejected claims, low reimbursements, and all of the other frustrations associated with a third party standing between a patient and his doctor—such things are unavoidable if we want health insurance to pay our medical bills instead of paying them ourselves.

Wistar Wilson is a research assistant at the American Enterprise Institute. Joseph Antos, the Wilson H. Taylor Scholar in Healthcare and Retirement Policy at AEI, cooperated in producing this article.

FURTHER READING: Antos’s working paper “The Case for Real Health Care Reform” is available here. His other articles for The American include “Everything You Wanted to Know About Medicare But Were Too Confused to Ask” and “Here’s Why the Public Plan Won’t Work.”

Image by Darren Wamboldt/Bergman Group.

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