So, What Is a Health Insurance 'Cooperative?' and Five Reasons Why Senator Conrad's Idea is a Realistic Option for Health Care Reform

If you've been following developments in Washington's attempts at health care reform, you may have read how the concept of an 'insurance co-op' was "pitched" by Senator Conrad (D - N.D.). See him describe it here. It's a compromise offered to bridge the disagreement over just how the Feds should sponsor a public option.

Senator Baucus (D-Mont.): “I am inclined, and I think the committee is inclined, toward a co-op”

Senator Grassley (R - Iowa): "there was a thing suggested that would be kind of a private-sector option along the lines of co-ops."

Senator Rockefeller (D - W. Va) is "dubious."

Senator Hatch (R - Utah) "I'm totally opposed"

When the Disease Management Care saw the term 'insurance cooperative' bubble up in its news feeds, it was confused but, unlike our Senators, didn't offer up any snap judgments. Instead, it did its homework. At first, it thought a 'co-op' was a large carbon footprint air-conditioned store filled with baguette-laden wicker baskets where boomer earth mothers and natural-foodies drive their hybrids to buy over-priced asparagus. That plus high end Chardonnay. Thanks to some web-enabled detective work, the DMCB found out they don't necessarily involve hybrid automobiles and that the concept of a co-op can be applied to the purchase of health insurance.

So, exactly what is this thingie called an 'insurance cooperative' and what is its potential for meaningful health reform? Because you regularly read the DMCB, you'll find the answer to this question well before you can finish that lunch you've been eating at your desk.

According to this Commonwealth Fund Issue Brief, an insurance co-op exists when small employers 'band together' on a regional basis to form a purchasing block that can negotiate better deals with the local commerical health insurers. This efficiently consolidates the decision making, billing and servicing under one roof and often allows for choice among several competing plans. It also allows all the participants to 'pool' their insurance risk, which, in turn, should lead to lower and more predictable premiums. Unfortunately, the track record of co-ops has been spotty, apparently because member businesses are constantly on the look-out for better deals and may exit the co-op, leaving the higher-health risk businesses behind in the equivalent of a death spiral. If they don't keep and maintain a large market share, they can't go toe-to-toe with the commerical insurers.

For a more complete review, this paper from Health Affairs teaches us about a number of pooled purchasing arrangments including the 'co-op.' It seems this has been around for a long time. They typically operate at the state- level, are not for profit, are run by employers, don't have to accept all insurers, carve out the administrative/back office functions to an insurer for an administrative fee, leave it to employees to choose the insurance they want from a list, and, thanks to ERISA, may not be subject to all State regulations.

And if you're wondering if the famous Group Health Cooperative has anything to do with this, the answer is yes. Back in 1947, a multi-member community-based group decided to buy its own clinic to offer health care for its employees. The rest is history.

How would the co-op fit in healthcare reform? According to this link, the legislative outline currently under consideration would require them to be State-by-State or regional, non-profit, provide a coverage option for individuals and small businesses with as few as 2 employees, be subject to State laws and have 'governance standards' that would presumably trump a consumer focus in the Boards of Directors.

The naive DMCB thinks the co-op idea may develop legs:

1. As noted previously on the DMCB, as debate on the public plan option matures and stakeholders realize it's not synonymous with 'Medicare for All,' the focus will shift toward other more politically nimble options that also offer credible health insurance. The co-op is such an option.

2. According to the Commonwealth Brief and Health Affairs articles described above, commercial health insurers don't like co-ops because they force them to compete on price instead of benefit design. The fact that insurers have historically been hostile to the co-ops is telling and could be reason enough for many Democrats to support the idea.

3. Without a government-run public plan, employers will have less of an incentive to drop health insurance for their employees.

4. The very term 'co-op' has the kind of fuzzy appeal - like ''pesticide-free' or 'consumer directed' - that the Democratic majority can spin while it seeks to counter partisan Republican attacks.

5. While the the DMCB has seen little evidence of input from the NAIC anywhere in the healthcare reform debate, it suspects the nation's insurance commisioners would support the co-op as a reasonable compromise between the State and Federal governments over what is a looming intrusion by Washington DC into their space - which, by the way, they think they've done a good job regulating. Recall that Ms. Sebelius is a Past President of the NAIC, so she'd probably understand how her fellow Commisioners could shepherd the State by State co-ops into position.

The articles above are somewhat skeptical about the ability of co-ops' to control costs. While that is a fair assessment of their track records, some of the examples cited occurred during the 1990s, when health care costs were on their way down and employers were disinterested. That's not the case now, so the DMCB thinks their prospects are better. That being said, If the co-op idea moves forward, look to Congress ponder regulations that keep (as in 'mandate') small employers and individuals in the co-op risk pool and keep insurers from poaching away low risk business with side deals.