Health care co-ops

The release of the Senate Finance Committee’s health reform bill includes the establishment of health care co-ops as an alternative to the public option touted in the Senate HELP committee and House health reform bills. A prior analysis from the General Accounting Office discusses the pros and cons of such cooperatives.

Nearly two-thirds of all Americans under the age of 65 obtain their health insurance coverage from their employer. However, the likelihood of getting health insurance from work differs dramatically for individuals who work for big firms (more likely) versus small firms (less likely). In response to Congressional request (made in 2000), the Government Accounting Office produced a report that detailed the usefulness of health care cooperatives in the provisions of health care in the United States. This topic is worth revisiting again today because the Senate Finance Committee’s health reform plan consists of a proposition to encourage the use of health care cooperatives to provide affordable health insurance to employees of smaller firms (less than 50 workers).

While health care cooperatives are useful for helping small businesses offer more choice to employees and easing the burden of administration, there is no evidence that cooperatives help to provide more affordable health care to purchasers.

The goals of health insurance cooperatives, some of which in the past have been either sponsored by states or by private small business associations, is to offer small employers the advantages larger employers have – increased bargaining power, administrative simplicity, and a choice of more insurance options.

On two fronts health care cooperatives can deliver on these proposed benefits. Some administrative streamlining is possible through a health care cooperative for small businesses. Likewise, choice of insurance plans is improved from the typical solo option up to 90 percent of small employers provide. However, these plan choices are limited in rural areas and are highly dependent on the voluntary participation of private health insurers.

A major failure of health care cooperatives is the lack of bargaining power for employers obtaining health coverage within the cooperative. In fact, in some cases, the price of the health insurance premium obtained through the cooperative was more expensive ($231 for a 55-year old) than a similar product obtain outside the cooperative ($216). Part of the reason for this failure is the extremely small market share for health care cooperatives (approximately 5 percent or less of the small group market). An additional reason cited for the failure of cooperatives to reduce health insurance premiums for members is the effect of adverse selection. Adverse selection is the process by which persons who are more likely to be sick (and therefore drive of health costs) are more likely to enroll in plans through the health care cooperative. Such adverse selection has lead to a “death spiral” where health insurance costs within the cooperative continues to rise until the risk pool shrinks to include only the sickest, most expensive patients. At that point, the cooperative implodes as happened in Texas in 1999.

Commentary

With the release of the Senate Finance committee’s vision for health reform in the United States, the full debate between the policy options of private market delivery of health care, versus non-profit health co-ops, and a full public option can begin in earnest.

Evidence from the non-partisan GAO and other researchers indicates that co-ops are not an effective tool for keeping health costs low for consumers. With co-ops performing about the same and sometimes worse than the private insurance market, perhaps the public plan deserves a try.

Public opinion is still divided on the public option. The debate should shift from ingenuous assertions about a government take-over of health care to whether or not government can provide health care more “efficiently” than the private market, Medicare, a well-respected public plan, certainly is more efficient than the market; so why not let a public option for all Americans have a chance to join in the competition.

by

Cedric K. Dark, MD, MPH