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Debate: Health insurance cooperatives

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Are health insurance co-ops a good model? Are they a good alternative to public insurance?

Background and context

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.


Contents

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Non-profit: Is it important that co-ops are non-profits?

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Pro

  • Co-ops are non-profits, not run by government nor companies 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."[1]
  • Non-profit co-ops are driven by health interests of members, not profits 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."[2]


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Con

  • Non-profit co-ops scale widely without profit incentive. 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.
  • Non-profit co-ops are less efficient without for-profit interest. 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.
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Vs. public insurance: Are co-ops a good alternative to public insurance?

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Pro

  • Co-ops compete with insurers like public option could 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."[3]
  • Co-ops are a great alternative to the public option 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.[4]


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Con

  • Non-profit co-ops are great, but no substitute for public insurance 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]."
  • Public insurance has succeeded internationally, co-ops have not. 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.
  • Health insurance co-ops are a ploy to defeat public insurance Yale 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."[5]
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Competition: Can co-ops scale to compete with private insurers?

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Pro

  • Health insurance co-ops can scale to compete with private insurers 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."[6]
  • Insurance co-ops self-sustaining, need no taxpayer support 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.
  • Co-ops can scale in a decentralized and community-focused manner. 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.
  • Co-ops are more community-focused than insurance companies 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."[7] 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.



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Con

  • Co-ops cannot scale to compete with insurers like public plan 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?"[8]
  • Health insurance co-ops cannot scale as quickly as public insurance 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."[10]
  • Health co-ops cannot scale to solve problem of uninsured 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.


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Reliability: Can health insurance co-ops be relied on? Are they well tested?

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Pro

  • Co-ops are a successful model for health insurance Edmund Haislmaier, et al. "Health care co-operatives: doing it the right way". Heritage Foundation. June 18, 2009: "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."
  • Widespread co-op model can succeed in health insurance 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."[11]


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Con

  • Health insurance co-ops are too unestablished to rely on Timothy Stoltzfus, a law professor at Washington and Lee University and a writer on health care policy, said in August of 2009: "The fact that not many [co-ops] exist now shows us there's not a viable model to compete with private insurers. It's effectively a diversion, as far as I'm concerned." [12]
  • Health care co-ops have a history of insolvency and failure Kate Pickert. "Can health co-ops do the job of a public plan?". Time. June 22, 2009: "apart from Group Health and Health Partners, the history of nonprofit HMOs is littered with failures. In the 1990s, a similarly set-up nonprofit HMO in the Washington, D.C., 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, was 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 nonprofit 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."


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Economics: Are co-ops economical? Can they keep costs down?

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Pro

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."[14]
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Con


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Quality: Do health insurance co-ops offer high quality care?

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Pro

  • Co-ops implement a more holistic, preventive approach Andy Kroll. "Moving past public options and health care co-ops". Mother Jones. August 19, 2009: "Dr. Eric Larson, MD, MPH, and the executive director of Group Health, one of the leading co-ops in the nation, recently wrote to me. [after the jump.] [...] Larson strongly emphasized not just Group Health's co-op model but how it chooses to deliver care—namely, its focus on integrative care, care that treats patients from a more holistic perspective and seeks to proactively treat illnesses and diseases rather than reactively. It's a model that, unlike so much of our health care system, emphasizes primary care medicine and preventive care—a proven way to prevent chronic conditions, which are, of course, a major contributor to skyrocketing health costs."
  • Democratic nature of health insurance co-ops enhances quality Senator Kent Conrad (D-ND), the ranking member of the Senate Finance Committee, said in June of 2009: "The democratic nature of co-ops could encourage increased quality and appropriate utilization and could help foster care integration and other delivery system reforms".[16]


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Con

  • Co-ops create tensions b/w doctors and governing boards "Q and A on Health Care Co-ops". MSNBC. August 17, 2009: "Q. What is the history of health care co-ops in America?[...] A: Very uneven. Many have failed over the decades because they were unable to compete effectively or because tensions between doctors and consumer-oriented governing boards could not be resolved." In general, this highlights the fact that a non-profit health insurance co-op will likely not compensate doctors very well, and this can lead to decreases in incentives, performance, and quality among doctors.


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Compromise: Are health insurance cooperatives a good compromise?

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Pro

  • Co-ops are a good compromise and alternative to public plan. The public plan is too contentious to pass. While it has significant support, it also has extremely fervent opposition. Passing it would create a near revolutionary-level of outrage. Avoiding this is important, and adopting a co-op model is a good means of doing this.


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Con

  • Co-ops are a political solution rather than a health care solution. Gov. Howard Dean told the Huffington Post: "the basic problem, as the Senate often does, is that they are worried about the internal Senate politics rather than the type of solution the American people want."[17]
  • Political difficulty of public insurance is no argument against it. That something is political difficult, with significant opposition, does not mean it is a bad idea. It says nothing about the underlying merits of the plan. In fact, this argument seems to be used frequently as a means to side-step the debate on the merits of the plan, which is distasteful and un-principled. Opposition to the public plan, and in favor of a co-op, should be based on the actual underlying arguments of whether one or the other would be better for America, not on whether one or the other is popular or politically convenient.
  • "Not enough votes" does not justify voting no. Many Senators argue that there are not enough votes for a public plan (60 are needed for a "filibuster proof" majority). This is foolhardy, because if such Senators decided to vote in favor of the plan, they could sway the difference in favor of the bill. Voting no because "others will vote no" is, therefore, a foolish self-fulfilling prophecy. It is also clearly un-principled, and based solely on "the political winds" of the time. Senators should vote according to their interpretation of the arguments, and what's best for the country, not according to the votes of their colleagues.
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Government involvement: Will co-ops lead to more government involvement? Is this OK?

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Pro

  • Co-ops are non-profits and avoid government control Kent Conrad, a ranking member of the Senate Finance Committee, who originally proposed co-ops as an alternative to the public option in June of 2009, said: "[a co-op plan] meets the objections of many Republicans and some Democrats as well. The co-op is not government-controlled."[18]
Chuch Schumer said in June of 2009 to CNS News: "We do have co-ops in lots of things, [it] is run for the customers and we like that because we think the public would run things for the customers too, [and] it wouldn’t be government."
"Cooperatives Being Pushed as an Alternative to a Government Plan". Washington Post. August 18, 2009: "cooperatives have been defined in the health-care debate primarily in terms of what they are not: They would not be run by the government. [...] That may make the cooperatives more politically palatable to conservatives, as well as to some Democrats such as Conrad, who fear that the public option may be a bridge too far."
  • Some government involvement in co-ops is justified. Government involvement is not toxic. Governments represent the interests of their citizens, in a republic where government is run "for, by, and of the people". To generally bash the government is to bash one's own representation through legitimate democratic processes. Unless one is opposed to the idea of the democratic process and representative republican governance altogether, a limited role for the government in co-ops should be seen as justifiable.
  • Health insurance co-ops are self-sustaining, not taxpayer-dependent. 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 favorably against a government-run public insurance option, which is dependent on taxpayer funding and the whims of government budget allocations.


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Con

  • Advocates of co-ops are really aiming for socialized medicine Senator Jim DeMint (R-S.C.) said the following about the Democratic co-op proposals: "Now, they — they may try to call it a co-op. They can call it a public option. But you know they are all on record saying they want a single-payer government system. So, any Republican now that helps them pass a bill is helping them pass a government takeover of health care."[19]
  • Supporters of co-ops will never reduce government involvement. Taxpayers and politicians are likely to become too invested in co-ops to ever agree to eliminate or even reduce the government's likely role in them.[20]
  • Government may never let health insurance co-ops fail Robert Zirkelbach, a spokesman for America's Health Insurance Plans, said the alternative being thrown out by the administration raises many questions: "would the government ever allow this entity to fail? If [not], then you'd have the health care version of Fannie Mae and Freddie Mac."[21]
  • Co-ops need government involvement, but then why not public plan? In order for co-ops to be truly effective and competitive against private insurers, the government would have to put significant subsidies and measures behind them. But, then, why not go with a public insurance plan, if the government needs to be involved either way?
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Popularity: Are health insurance co-ops popular among citizens and organizations?

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Pro


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Con


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Pro/con sources

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Pro


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Con


See also

External links

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