Monday, August 24, 2009

What is a health insurance Co-Op?

Health care co-ops are nonprofit, member-owned and member-governed organizations through which individuals and small businesses can buy health insurance and negotiate fees with physicians and hospitals. They operate as exchanges which are a structured marketplace where people can choose among health plan options. In the Health Affairs blog "What People Don’t Know About Health Insurance Exchanges" by Peter Lee and John Grgurina, they make the case that a sustainable insurance exchange would:

  1. need to consider requiring individuals and very small groups (10 or fewer employees) to use the exchange
  2. be a dual market, we need to make sure there is a "level playing field" between the exchange and the market outside of the exchange
  3. need to be monitored closely, looking at how exchanges are run and ensure responsiveness and accountability

In a recent New York Times article Anne Underwood draws a sharp distinction between insurance co-ops and health insurance purchasing co-ops. She makes a case that only a public option will control costs, and co-op insurance exchanges would do no good. Dr. Jost in another article states that the only way cooperatives aimed at bending the cost curve and driving quality system-wide could succeed is with a strong national organization.

The leading advocate of the co-op concept in Congress is Kent Conrad, a Democratic senator from North Dakota and a member of the Gang of Six, the coalition of 3 Republicans and 3 Democrats on the Senate Finance Committee who have resolved to work out health reform on a bipartisan basis. The Six reaffirmed that commitment during an August 21 conference call, pledging to focus more closely on cost and financing issues that many find troubling.

The benefit of co-ops as a way to broaden access to health insurance might be that they are intended to become self-sustaining and not require ongoing government involvement and control. According to Senator Conrad, start-up money would be made available to capitalize them, but they would transition to self-sustainability through the member premiums they collect. Conrad also stresses they would be run by members and not by federal or state governments. They also would be required to take everyone regardless of pre-existing conditions, and could be formed at the state level or regionally.

Conrad told the Wall Street Journal that the current co-op proposal under negotiation in the Senate Finance Committee version of the health reform bill (which has not yet been released for Congressional debate or public scrutiny) would establish co-ops with a minimum of 500,000 members to ensure critical mass for effective provider bargaining. The federal government would offer interim start-up expertise and financing to the tune of $6 billion. The goal would be to help co-ops rapidly enroll 12 million members, which would make them the third-largest player in the US health insurance market.

Senator Conrad's office refers questions to his Web site, where the co-op FAQs provide a cute co-op acronym (Consumer-Owned and -Oriented Plan) but not much insight into the details of the plan. One FAQ statement seems to imply that healthcare providers would not be direct participants: "The Consumer Owned and Oriented Plan would allow for the creation of not-for-profit cooperatives that would provide affordable health insurance by creating a pool of consumers who could then negotiate with providers for health care."

The FAQ cites the Group Health Cooperative as an example of "a large health insurer in the Pacific Northwest." Tis does not quite tell the whole story. Pam MacEwan, executive VP for Group Health public affairs, told the WSJ that Group Health enjoys pricing leverage. But she said that relies on the 600,000 members in the co-op, along with its in-house network of doctors, hospitals and clinics built up over 62 years. "You can't get a lot smaller than that," she said..

So where did the healthcare co-op idea came from? Cooperative businesses and organizations are a pervasive part of the US economy, according to the National Cooperative Business Association. Current co-ops include Fortune 500 companies such as Land O' Lakes and the Associated Press. There are also over 900 rural electric cooperatives that own and maintain almost 50% of the electric distribution lines providing electric service to 37 million people. Cooperatives are all over the place. It is at least worth exploring the idea theymay be helpful in healthcare.


  1. If you require individuals and small groups to use the co-op, how do you have a market outside of a group?

  2. Good question Ilene! I think the idea is that the requirement is for some type of insurance (which may not stand the constitutional test in the courts). Until we see the actual plan, I am really only guessing...

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