CO-OPS NOT THE ANSWER
In researching my latest AIP article on health care co-ops, I must confess that I wanted to like the idea. I didn’t know much about them but what I had heard was pretty good.
Here’s a reasonable analysis from the Heritage Foundation that finds some things to like but much more to fault with regard to health insurance cooperatives.
For myself, I am a firm believer in the concept of “simple is best.” All things being equal, whether it is in my personal life, or a government program, the less complex the idea, the better chance it has of working. This may sound stupidly simple but if you look at the way many people live their lives, they could benefit greatly by following that advice. Too often, we unnecessarily complicate our lives by overthinking, or overdoing.
With government, it is simply a matter of scale. Trying to serve 300 million people is, by definition, an enormously complex undertaking. So it would be with co-ops.
The plan is so nebulous at the moment that no one is really sure how co-ops would work in practice. Ideally, you would have 50 separate co-ops serving people in the various states. Some smaller states might band together to form regional co-ops to increase their marketing and distribution opportunities. The federal government would provide $3-4 billion in seed money to get the co-ops off the ground (perhaps more) and an administrative infrastructure for each co-op would either be set up by the state or contracted out.
Participants (”shareholders”) would sign up and purchase insurance through these pools. Policies would not be underwritten by private companies but by the co-ops themselves. It is assumed the government would grant generous tax subsidies to businesses and individuals to sign up with the co-ops and make them a going concern. Decisions on what to cover, and reimbursement rates would ideally be made by all the shareholders, but when you are talking about a statewide co-op, that will probably not be possible.
Would it work? Would the co-ops be able to compete with private insurance companies, forcing them to lower premiums while giving shareholders quality care at a reasonable cost?
The answer is almost certainly no. First of all, there is the titanic complexity of setting up so many co-ops in the first place. By definition, they would have different rules, different coverages (although guidelines from the federal government would help there). They would conduct business in 50 different ways.
Coverage would be wildly uneven and quality would also vary. Some - perhaps many - might not make it or be so poorly run that the government would have to take them over (The Washington, D.C. co-op was forced to sell itself to Humana it was so mismanaged.) There were many health care co-ops during the Depression that all ended up failing. And the record of co-ops begun in the last 20 years is very uneven with some succeeding, some failing, and some just limping along.
I think part of the answer is a matter of scale. The successful co-ops in Seattle and Minneapolis are small enough to be well run and large enough to spread the risk out over as many people as possible.
But what happens when you try and graft that model on to a statewide co-op? It won’t take for the simple reason that what is simple at the local level becomes devilishly complicated when you go from insuring 100,000 people to several million. Also, several questions would have to be raised; who elects the directors or would the governor appoint them? How can decisions on what coverages and how much that would be affecting a million or more people be made? Would politics enter into the running of these co-ops?
Co-ops would not adequately address the problem of insuring those with chronic or pre-existing conditions. And forget portability. Nor would they necessarily insure more of the currently uninsured. It’s hard to see how people would see a co-op - which after all, is competing with private insurance carriers - as any more practical or a better deal than anything they are presented with now. Without an individual mandate, there will be millions who simply refuse to buy insurance regardless of how cheap it is or how generous the subsidy.
Heritage’s Edmund F. Haislmaier thinks that there might be a minor role for co-ops in health care reform:
In the case of health insurance markets, there are two areas where the co-op model could conceivably be applied.
The first is with respect to entities that might organize the buying and selling of health insurance, such as employer purchasing groups or state health insurance exchanges. The second is applying the cooperative concept to one or more of the insurers selling coverage in the market.
The idea that businesses could pool themselves and purchase health insurance is an excellent one and is already being tried with liability and other forms of insurance on a micro basis in several industries. This also would be a complex undertaking but much less so than trying to set up statewide co-ops.
In short, the more I read about co-ops the more convinced I became that on a nationwide basis, it would never work to deal with the problems they would be set up to address and may, in many cases, make matters worse. It is possible that eventually, the federal government would be forced to take most of them over anyway.
I don’t necessarily buy the idea that co-ops are a Trojan Horse for a public option but certainly the potential is there for a de facto government takeover. It’s not the only reason to oppose their creation but it should be weighed with the rest of the complex problems that co-ops would create for both government and the consumer.
Excellent, substantive post here, and one the MSM would do well to expand upon. I am afraid the nebulous aspect is a feature and not a bug, though. The co-op approach appears designed more to save face than to accomplish anything at this juncture.
I also have to wonder if state insurance commissioners, who tend to be as power mad as any left-wing D.C. pol, would cooperate with their counter-parts in other states…and this assumes that the states still would regulate insurance provided via the co-ops. Or would the co-ops be federally regulated? Would the infrastructure be self-regulating?
I agree that if private businesses could combine and pool and expand their base of insureds would be a great idea. Would government consent to being cut out of that loop, though? And again, what would be the regulatory structure?
Again, good job here, and something to chew on.
Comment by jackson1234 — 8/18/2009 @ 10:25 am
That, and the average resident of the above cities is probably somewhat more liberal and therefore more deposed to the idea of co-ops in the first place. I’ll bet Co-ops would be a runaway success in Berkley and Cambridge, while they would be non-starters in Birmingham and Orange County. Other parts of the midwest with histories of progressive policies (such as Wisconsin), may also find success with co-ops.
Which raises an interesting idea, could the solution to the health care crisis be for each of the individual states to come up with their own answer under a loose federal mandate? We leave the implementation of so many responsibilities (such as education) up to the state governments, why shouldn’t health care for all be any different?
Comment by Surabaya Stew — 8/18/2009 @ 1:04 pm
“Which raises an interesting idea, could the solution to the health care crisis be for each of the individual states to come up with their own answer under a loose federal mandate? We leave the implementation of so many responsibilities (such as education) up to the state governments, why shouldn’t health care for all be any different?”
That sounds about right to me.
Rick,
I had thought highly of the co-op idea, but with your post and the Heritage link, I have to admit this is not much better than the public option. Thank you for a hysteria-free dose of reality.
Comment by Eddie — 8/18/2009 @ 1:35 pm
Lost in the discussion is the fact that many of the demonized private insurance companies (i.e. many of the BCBS carriers, etc.) are currently not-for-profit and are run with the same basic principles outlined above for the co-ops.
In fact, the BCBS companies almost all grew out of the co-ops of the depression era. They are demonized in the rhetoric of the current reform push, for trying to do the very thing that the reform is hoping to do (i.e. holding down the rising cost of health care). Any government plan (or government supported co-op) would be forced to end up making the same decisions these demonized companies do or it would fail.
Insurance, by definition, is a co-operative enterprise (whether it is for profit or not).
I think everyone can agree that some changes could be made to improve the current Health care system. But, demonizing the private carriers, driving them out of business and replacing them with a government run options is not it.
Comment by bb — 8/18/2009 @ 2:22 pm
bb said:
Why not? Driving companies out of business that fail their customers so completely is about as American as you can get.
Comment by Chuck Tucson — 8/18/2009 @ 3:29 pm
Chuck Tucson Said:
Why not? Driving companies out of business that fail their customers so completely is about as American as you can get.
Right, the American way is capitalism. The market will fix itself. If a company fails it’s customers, capitalism insures that eventually it will fail. Customers will go elsewhere. Companies fail all the time, the problem starts when the government circumvents that process, mettles in a market and props up bad business (see: Fannie Mae, Freddie Mac, the whole banking industry).
Comment by bb — 8/19/2009 @ 11:54 am
Rick,
I might have missed it but I wonder if you’ve actually presented any of your own ideas for reforming our health insurance system? It appears that you believe the system is in need of some reform but I’m not certain what form that reform would take.
Comment by Eric — 8/20/2009 @ 12:04 pm