Co-ops vs. the Public Option

One of the ideas floating around Washington is to promote "co-ops" -- organizations of patients/providers who would join together and be chartered to provide their own healthcare coverage, rather than purchasing it from insurance companies.

Well, God bless 'em if they can pull it off. Here in Philadelphia, where there are a small number of powerful commercial insurers, each controlling a large portion of the market, doctors and hospitals tried to do something like that, too. It failed.

One problem is that such a group is assuming a lot of risk for the future cost of care. Assessing risk is something insurers do very well. You're going to be hard pressed to do a better job.

As far as the idea that the co-op would have less overhead, what really would happen would be that the co-op would have a huge amount of initial overhead with the costs of setting themselves up as a legal entity, creating a plan for what employees they need and hiring those people, creating the data management structures to make sure their premiums are collected and their claims are paid, etc.

And as far as the idea that the individual co-op members would be more likely to control their own healthcare costs if they were at some financial risk for the company's claim experience: You're still going to have to deal with selfish people who join the co-op in the expectation that there will be less restrictions on the health care they demand, and who are happy to let the costs be shared among the other members.

In addition, the co-op model doesn't address the problem of large insurers using their clout to demand discounts from providers, suppliers, and drug manufacturers, and the effect of those demands on raising prices for individuals. Those insurers can use those deals as a weapon to keep the co-ops from being able to compete on equal ground, just as the Wal-marts of the world demand that suppliers not give the same discounts to their competitors.

The only co-op that could hope to survive would have to be large enough to eat the start up costs and to negotiate discounts on an even footing with existing insurers. They would in effect be a mutual insurance company themselves. We already have such companies, and they aren't in any hurry to get into the health care business. If health care reform changes their incentives, great. I'm interested to see how it plays out.

If people want the option of co-ops: Let's do it, and I wish you the best. But they are not an alternative to providing a public option, because they will not be strong enough to provide competition for established health insurers. Conservatives complain that a single payer model would not be under pressure to maintain quality or control costs. We need competition (a good conservative value) to do that. I agree. And if private insurers can't compete with some government-run healthcare plan everyone says they're afraid of, those insurers need to reconsider their business model.