Health Cooperatives Gain Backing as Alternative to Public Option

By David S. Hilzenrath and Alec MacGillis
Washington Post Staff Writers
Tuesday, August 18, 2009

As prospects fade for a public, or government-run, option as part of health-care reform, key senators are considering another model to create competition for private insurers: member-owned, nonprofit health cooperatives.

Sen. Kent Conrad (D-N.D.), the chief advocate for including cooperatives in reform legislation, has cited examples as disparate as the Land O'Lakes dairy concern, rural electricity cooperatives and Ace Hardware.

But so far, cooperatives have been defined in the health-care debate primarily in terms of what they are not: They would not be run by the government.

That may make the cooperatives more politically palatable to conservatives, as well as to some Democrats such as Conrad, who fear that the public option may be a bridge too far. But it also presents new challenges: Cooperatives would face potentially greater difficulty getting off the ground and obtaining discounted rates from doctors and hospitals, observers say.

"It's very difficult to start up a new insurance company and break into markets where insurers are very established," said Paul B. Ginsburg, president of the Center for Studying Health System Change. "I don't see how they're going to obtain a large enough market share . . . to make a difference."

Karen Davis, president of the Commonwealth Fund, a foundation focused on health care and social policy research, said co-ops may not enroll enough people to negotiate favorable rates with health-care providers.

Dennis G. Smith, a senior fellow at the Heritage Foundation, a conservative policy research group, said he cannot yet tell whether co-ops would amount to government-run health plans by another name.

There are at least two major health-care organizations that could serve as models for Congress: HealthPartners in Minnesota and Group Health Cooperative, based in Seattle. They employ physicians and own health-care facilities, giving them greater power to control the delivery of care.

A major question Congress would have to decide is whether the new cooperatives would be integrated medical systems, like HealthPartners and Group Health. Or, would they simply negotiate reimbursement contracts with health-care providers, as conventional insurers do?

According to Conrad's Web site, co-ops would contract with providers and act as insurers. That could make them more like mutual life insurance companies, which are owned by their policyholders and are therefore somewhat insulated from the pressures and temptations of Wall Street.

Like the proposed public option, state or regional co-ops would be among the choices offered through a new regulated marketplace, in which eligible individuals could more easily comparison-shop for insurance.

However, co-ops would lack perhaps the main advantage of the public option: reimbursement rates for doctors and hospitals set by federal law, like those paid by Medicare, the program for older Americans. Federally determined reimbursement rates were central to the cost-saving promise of a government-run health plan and a potentially powerful competitive advantage. They were also a lightning rod for intense opposition from health-care providers and private insurers, who denounced the public option as a threat to their financial survival.

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