Health co-ops face hurdles

In competition with private insurers, co-ops' viability is in doubt.

The New York TimesAugust 18, 2009 

— The White House has indicated that it could accept a nonprofit health-care cooperative as an alternative to a new government insurance plan, originally favored by President Barack Obama. But the cooperative idea is so ill-defined that no one knows exactly what it would look like or how effectively it would compete with commercial insurers.

What is certain is that, as a substitute for a government plan, the co-op concept disappoints many liberals and stirs little enthusiasm among insurers or Republican lawmakers.

And as the White House signaled its flexibility, a contentious debate over the merits of a public plan versus co-ops began playing out in the Democratic Party. Aides to Obama tried to tamp down concern on the left by stressing Monday that the president still supports the idea of a public plan and has not decided whether to drop it.

Some lawmakers said the White House had sent mixed signals, confusing friend and foe alike on Capitol Hill. House Speaker Nancy Pelosi said Monday that House Democrats, rather than backing down, strongly supported giving people the choice of a new government health insurance plan. "A public option is the best option to lower costs, improve the quality of health care, ensure choice and expand coverage," Pelosi said.

As the debate rages, lawmakers are learning that creating cooperatives -- loosely defined as private, nonprofit, consumer-owned providers of health care, much like the co-ops that offer telephone, electric and other utility service in rural areas -- will not be easy.

The history of health insurance in the United States is full of largely unsuccessful efforts to introduce new models of insurance that would lower costs. And the health insurance markets of many states suggest that any new entrant would face many difficulties in getting established.

'Care is excellent'

Still, proponents of health co-ops are not deterred.

Professor Ann Hoyt, an economist at the University of Wisconsin-Madison, who has done extensive research on cooperatives in many industries, said they could serve a useful purpose in health care -- just as credit unions compete effectively with banks, prompting them to offer higher interest rates on deposits and lower rates on loans.

Hoyt said she had been a member of the Group Health Cooperative of South Central Wisconsin since 1985, and she reported that "the care is excellent."

Larry J. Zanoni, executive director of the Wisconsin plan, said: "We are a testament to the success of a health-care cooperative. But it took us over 30 years to get where we are today."

A cautionary tale

Hopes for co-ops may be tempered by the experience of Iowa, home to Sen. Charles E. Grassley, the senior Republican on the Finance Committee, which is trying to hash out a bipartisan health-care proposal.

In the 1990s, Iowa adopted a law to encourage the development of health-care co-ops. One was created, and it died within two years. Although the law is still on the books, the state does not have a co-op now, said Iowa Insurance Commissioner Susan E. Voss.

Wellmark Blue Cross and Blue Shield collects about 70 percent of the premiums paid in the private insurance market in Iowa and South Dakota.

To become established, a market entrant would have to offer lower prices or better services, Voss said, adding: "Wellmark has a huge advantage. They already have contracts with practically every doctor in the state."

A bipartisan group of six senators on the Finance Committee is coalescing around Conrad's proposal for state or regional insurance co-ops, but details have not been disclosed, or perhaps even settled.

Conrad, appearing this week on "Fox News Sunday," said the idea of a co-op is gaining traction.

No love from insurers

Insurers have strenuously resisted Obama's call for a new government-run insurance plan. Karen M. Ignagni, president of America's Health Insurance Plans, a trade group, was no more receptive to the idea of co-ops on Monday.

"How will the cooperative be structured?" Ignagni asked. "What are the regulatory requirements? It may sound benign, but it may use administered prices. I'm not sure it solves any problems."

Sen. Orrin G. Hatch, R-Utah, said he sees the differences as more semantic than substantive. "You can call it a co-op, which is another way of saying a government plan," Hatch said.

Paul B. Ginsburg, president of the Center for Studying Health System Change, a nonprofit research group, said competition among insurers is already fierce in many parts of the country.

"I don't think bringing some additional competitors in the health insurance market will lower costs," Ginsburg said. "Hospitals are the ones with the market power, and they're forcing insurers to pay higher and higher rates because patients want broad networks."

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