NEOAVATARA

So, what is a health care co-op?

That is a question that I have been inundated with since the public option appears on life support, and as Senators such as Kent Conrad try to save health care reform this year with this concept.

The prime example of a successful health cooperatives is the Group Health Cooperative of Puget Sound in Seattle.  This 62 year old nonprofit organization has been providing health care for the State of Washington successfully for decades.  The co-op is governed by a board of its OWN members.  The board members are not involved with the daily routine business, but they are intimately involved in deciding the direction and decision-making involved.  Generally, these board members come to the table with numerous backgrounds, both in medicine, finance, law, and business.  A second model is HealthPartners in Minnesota, which totally employs and controls all of its physicians, which allows them to reduce self referral and duplicatative costs.

A C.E.O. runs the daily business.  However, the CEO is directly answerable to the Board, and thus, the co-ops members.

In moste cooperatives, there is an incentive system to promote cost effectiveness.  Physicians are basically paid salaries from the co-op, with bonus systems built in.  The physicians who sign on to the co-op don’t have to work solely for the co-op, which actually creates more competition…but they get paid a flat fee to take care of the patients they see belonging to the co-op.  They also really don’t have a huge profit incentive, since all profits are reinvested into the health care system.  HealthPartners in Minnesota, for example, aims for 2% profit margin, which they then reinvest in the business.

The positives to co-ops is that they can (and do) provide top-notch health care, but generally face state regulatory practices.  A Federal program could eliminate those roadblocks, and give co-ops the powers they need to be successful.  Additionally, co-ops, because they are run by their members, are by definition patient-centered entities. They generally do not use the current fee-for-service system that is falling apart.

What are the drawbacks?

Many are some I stated above.  The GAO (General Accounting Office) studied them back in 2000.  They found the following:  “The cooperatives’ potential to reduce overall premiums is limited because (1) they lack sufficient leverage as a result of their limited market share; (2) the cooperatives have not been able to produce administrative cost savings for insurers; or (3) their state laws and regulations already restrict to differing degrees the amount insurers can vary the premiums charged different groups purchasing the same health plan.”

Many of these problems would be solved with huge nationwide co-operatives with a independent, albeit federal built, structure.

First, you would need signficant seed money, upwards of $10 billion, to get nationwide cooperatives going.

Also, many cooperatives have failed in the past.  Usually this orginates with conflicts between the group members, consumers, and medical groups.  State regulatory practices also have limited the kind of negotiating that co-ops can perform, thus limiting their effectiveness.  However, federal regulatory changes could alter that landscape.  For example, some states bar co-ops from directy paying salaries to physicians.

There are barriers into entering any health care market in the United States.  Large health insurers still dominate in many areas.  But that has not prohibited new companies from entering these markets.  Here in my hometown of Columbus, within the last two years a physician dominated health insurer was started.  Starting co-ops in these areas is completely possible.

Many Conservatives are very leery of the co-op solution.  Michael Tanner at Cato has a large piece about how it is still government run health care.  I disagree.  Of course, it is all in the details…however, traditionally the real benefit of co-ops is that they are independent of both government and industry. Formed in the correct way, they can be a completely private run entity.  Also, understand…currently, almost all insurers currently base their cost structure on Medicare.  Co-ops, on the other hand, base their pay structure on their own personal needs, independent of any government system.  You could argue co-ops are more independent of the government than private insurers are.

However, co-ops have worked in many other arenas, would be controlled not by the government or even insurance companies but by individual members.  It could help provide access to health care that neither the government or the current insurance struture can.  Co-ops certainly won’t be a solution for everyone everywhere, but could provide the additional competative market we all want, without government intrusion.  A private market solution for a cost problem…it almost makes too much sense.