Faced with rising opposition to a so-called "public option" in health care reform, some Democrats are floating the idea of establishing health insurance "co-operatives" as an alternative. Republicans like Sens. Olympia Snowe (Maine) and Charles Grassley (Iowa), who are desperately devoted to the idea of bipartisan compromise, have pronounced themselves “intrigued” by the idea.
A closer look suggests that the only thing intriguing about the co-op alternative is whether it is a completely meaningless construct or simply camouflage for the “Public Plan” option.
A "co-op" can be defined as a business owned and controlled by its workers and the people who use its services, in this case presumably the people whom it insures. In that sense, government provision of some sort of legal framework or seed money to help establish health insurance co-ops seems relatively harmless but also relatively pointless. The U.S. already has some 1,300 insurance companies. Adding a few more would accomplish...what?
States already have the power to charter co-ops, including health insurance co-ops. In fact, health care co-ops already exist. Health Partners, Inc. in Minneapolis has 660,000 members and provides health care, health insurance and HMO coverage. The Group Health Cooperative in Seattle provides health coverage for 10 percent of Washington State residents. PacAdvantage, a California co-op, covers 147,000 people. By all accounts the people insured through these co-ops are happy with their choice. But there is no evidence that they are significantly less expensive or more efficient than other insurers.
The new co-ops would presumably have to advertise like other insurance companies, build physician networks, pay competitive reimbursement rates, and in general act like, well, every other insurance company. It is suggested that the new federal co-ops would be nonprofits, and therefore would offer better service and lower costs. But many insurance companies, including "mutual" insurers and many "Blues," are already nonprofit companies. If the new co-ops operate under the same rules as other nonprofit insurers, why bother?
Michael D. Tanner is a senior fellow at the Cato Institute, heading research into a variety of domestic policies with particular emphasis on health care reform, welfare policy, and Social Security. His most recent white paper, "Bad Medicine: A Guide to the Real Costs and Consequences of the New Health Care Law," provides a detailed examination of the Patient Protection and Affordable Care Act (Obamacare) and what it means to taxpayers, workers, physicians, and patients.