Q and A: Health Insurance Cooperatives

As support for the public plan wavers, attention has turned to a proposal by Sen. Kent Conrad, D-N.D., to instead develop a system of health insurance cooperatives to compete with private insurers. Here is a primer on some of the basics of such co-ops.

What is a health insurance cooperative?

A health insurance cooperative is a member-owned, nonprofit group — similar to a rural electric cooperative — that would provide its members with health insurance options. Cooperatives could be formed at a national, state or local level, and could include doctors, hospitals and businesses as member-owners.

The details of Conrad’s plan have yet to be worked out. But broadly, he has proposed a system in which the government would offer seed money (he’s suggested $6 billion) to doctors, businesses and hospitals to form the co-ops. Eventually the co-ops would have to become self-supporting with premiums paid by members. A temporary government board would help set up the cooperative, which Conrad has suggested might be a national entity with state-level affiliates.

Do any insurance cooperatives exist now?

Yes, although not many. In the 1930s and ’40s, the Farm Security Administration encouraged the development of rural health cooperatives, and at one point about 600,000 Americans belonged to one. But few lasted after the FSA removed its support in the late 1940s. The Seattle-based Group Health Cooperative is one of the few that survived. It now covers more than 500,000 members and is the third-largest insurer in Washington State.

The Group Health Cooperative in Seattle owns a network of hospitals and employs its own salaried doctors. Other, more-limited models of health insurance co-ops also exist. For example, according to the Los Angeles Times, the United Agricultural Benefit Trust in California offers health insurance to its member-owners. It does not own its own provider facilities, but instead negotiates rates with a network of hospitals and doctors.

Many other co-ops have begun and failed over the years, such as the Florida Community Health Purchasing Alliances, which covered 92,000 people in 1998 but closed down in 2000.

Who supports this, and who’s against it?

President Obama and many Democrats have called for a government-run public plan option, however, that plan has failed to attract any Republican support. A bipartisan panel on the Senate Finance Committee, which is chaired by Montana Democrat Max Baucus and includes Conrad, was negotiating a compromise plan while the Senate was in session this summer. That compromise is reported to include co-ops instead of a public plan.

Health and Human Services Secretary Kathleen Sebelius recently suggested that the Obama administration would be open to the idea of co-ops.

However, many more liberal Democrats are opposed to the idea. Former Democratic Party chair Howard Dean, for example, has said he believes that “you really can’t do health reform” without a public option.

What are the potential advantages of co-ops?

Conrad and other Democratic proponents of co-ops argue that they would provide competition to private insurers without resorting to a government-run option that will never garner enough Republican votes to pass in the Senate.

Proponents also argue that because cooperatives are member-owned or member-run, they offer an exceptional focus on the quality of patient care. And co-ops such as Seattle’s Group Health Cooperative are organized as integrated care systems in which doctors are salaried employees — a system many proponents say reduces costs and improves care quality.

What are the potential disadvantages?

Democratic critics say that co-ops will never be strong enough, or gather a large enough customer base and enough negotiating clout, to effectively compete with private insurers. They also argue that a network of co-ops will be more difficult to set up and administer than a public option, without providing the same advantages.

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