Health-Care Cooperatives: Fig Leaf or Fix?

With Obama softening his stance on a public insurance option in the face of stiff opposition, health-care co-ops emerge as an untested alternative

By Steve LeVine and Esmé E. Deprez

Senator Kent Conrad (D-N.D.) says he is trying to revive apparently deadlocked health-care talks by pushing nonprofit insurance cooperatives. But the co-op model he is touting has been tested only on a small scale and is a questionable vehicle to generate real competition for huge health-insurance corporations, injecting further uncertainty into the White House's attempt to pass health-care reform this year.

Conrad has been talking up the idea of establishing consumer-run cooperatives across the country as competition for the private sector. The recommendation has followed virtual across-the-board Senate Republican rejection of a government-run insurance option favored by many Democrats as a necessary component of any health-care reform legislation. One of the foremost proponents of that so-called public plan had been President Barack Obama, although comments on Sunday by the President and Health and Human Services Secretary Kathleen Sebelius seemed to suggest that it could be dropped if needed to advance reform legislation. In a speech Aug. 16, Obama said the public plan is "just one sliver" of health-care reform, only "one aspect of it." And in an interview the same day with CNN, Sebelius said the public option is "not the essential element" of reform.

Some 300 health-care cooperatives already exist in parts of the country, including Arizona, California, Minnesota, Tennessee, and Washington state, according to Paul Hazen, president and CEO of the National Cooperative Business Assn. But these health-care co-ops don't actually underwrite and sell health insurance; they simply negotiate rates on preexisting plans with health-insurance companies. To operate as Conrad has proposed, Hazen says, the co-ops would have to be able to negotiate directly with health-care providers—doctors, hospitals, and drug companies—thus cutting out the insurance company middleman.

Gaining Leverage

Conrad and other co-op advocates say these organizations already demonstrate a successful competitive model for health-care reform. But analysts and critics say that in addition to changing the way they operate, the co-ops would have to grow at least to statewide or regional scale in order to exert cost-suppressing bargaining leverage with doctors and hospitals. The Tennessee Rural Health Plan, for example, which calls itself the largest rural health co-op in the nation, provides coverage to more than 186,000 people. WellPoint (WLP), the country's largest health-insurance provider, has some 30 million members nationwide.

And while they would not be government controlled, the federal government will probably need to provide startup funding, such as the low-interest, long-term loans that were provided to many rural electric co-ops that have since become independent. Otherwise, Hazen says, "you're not going to have the same ability to negotiate on health services as the national providers." One of three versions of the House bill includes $6 billion in seed money for the co-ops.

Republicans have appeared to gain political traction among voters with criticism of Obama's insistence on a public insurance option, using that to suggest Democrats want to hand health care over to the government to run. Republican critics of the health-care bills have not as yet expressed support for Conrad's proposal.

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