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Health Cooperatives Gain Backing as Alternative to Public Option

Co-ops would lack the ability to piggyback onto existing government institutions, like the ones that help administer Medicare.

President Obama championed a government-run health plan as a way to generate competition for private insurers and keep them honest, but the administration over the weekend signaled that it is willing to accept reform legislation without a public option.

As nonprofit enterprises, cooperatives would not have to worry about generating returns for shareholders. They could use that freedom to reduce members' premiums or put more money into improving care. HealthPartners aims for a 2 percent profit margin, said Mary Brainerd, the group's chief executive.

Being owned by members could make them more accountable to consumers, Brainerd said. Although HealthPartners is not owned by members, policyholders elect its board, and candidates for board seats have run campaign ads on local cable television, Brainerd said.

"It's not a magic answer, but I think it has a lot of the incentives that you would want to see that are pro-consumer," she said.

How the co-ops would spring to life is an open question. As start-ups, they could have a hard time competing with insurers that already dominate local markets. It is possible that existing health care organizations could try to convert themselves into co-ops.

There is a danger that co-ops could someday try to turn themselves into something else. Many non-profit health-care institutions, including CareFirst in the Washington area, have tried to convert themselves into for-profit corporations listed on the stock markets. CareFirst's attempt foundered amid criticism that it would generate huge financial windfalls for the company's executives and convert years of tax advantages into private gain.

Most Blue Cross and Blue Shield plans have a history as consumer cooperatives in the sense that they were nonprofit and owned by their members, said Mark V. Pauly, professor of health-care management at the University of Pennsylvania's Wharton School.

"The history here is that they did bargain aggressively with hospitals because they often had (and still have) the largest market share of any private insurer. But there is little evidence that they held down spending growth, and a lot of evidence that they were captured by their professional management and not really controlled by consumers or by the public," Pauly said by e-mail.

Conrad envisions the co-ops receiving seed money from the government.

"The hard reality is, the reason I was asked to see if I could come up with [an alternative] is that the public option does not have enough support in the Senate to pass," Conrad said in a recent interview. "It's an alternative that would accomplish much of what's appealing [in the public option] and not have the fierce opposition of virtually every Republican and some Democrats."

It remains to be seen whether the co-op alternative would win any support for the legislation in Congress.

Sen. John D. Rockefeller IV (D-W.Va.), a leading proponent of the public option, isn't sold on Conrad's substitute.

"The co-op approach is very weak," he said in a recent interview.

Apparently, the proposed health co-ops would differ from another form of co-operative, the real estate version. Unlike, say, Manhattan's exclusive co-ops, whose boards decide who can move into the building, health co-ops would have to admit anyone willing to pay the premium, according to Conrad's Web site.

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