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Steven Hill: Health-Care Cooperatives Can Work

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By Steven Hill
Monday, October 12, 2009; 4:52 PM

Health-care cooperatives have gotten a bad rap. But if properly designed, they could offer quite a lot to both the left and the right, as well as to anyone interested in expanding health-care coverage and reducing costs.

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According to the American Medical Association, insurance markets lack vigorous competition in more than 9 out of 10 metropolitan areas and in at least 16 states. That's because dominant insurers in a local market often pay health-care providers high reimbursement rates in order to discourage them from participating in rival insurance plans, which discourages other insurers from entering the market and frees the dominant insurer to raise its premiums to cover the inflated reimbursements. The insurance companies and doctors make out, but the patients pay for it all.

The most direct way to break this logjam is to introduce a nonprofit element into the health-care market. But it matters little if that nonprofit element is provided by the government or by a private organization, such as a cooperative, if it is designed correctly. The effect on market dynamics is substantially the same, if the nonprofit can produce quality health care at a lesser price.

Germany provides an example. With over 200 private, nonprofit health-care companies covering 92 percent of its population, Germany spends per capita about 55 percent of what the U.S. does, yet it gets much better results.

But simply having more nonprofit players is necessary but not sufficient. After all, Kaiser and Blue Cross/Blue Shield are nonprofits, but they rake in huge earnings and pay multi-million-dollar CEO salaries. So costs must also come under control, which is best illustrated by another German practice. Representatives of the health-care nonprofits negotiate with physicians, nurses, health-care professionals and patient representatives to determine fees and rate ceilings for every treatment procedure.

That combination -- of nonprofit companies and negotiated fees for service -- prevents costs from spiraling out of control. This system is better not only for individuals and families but also for German businesses, since it not only makes their health-care costs lower than those in the U.S., but it also allows them to better forecast and plan for these costs.

Interestingly, both of these elements have been present in the proposals before the Senate Finance Committee, but they haven't yet come together into a single bill. If a Senate proposal combined the two into a single bill, they might have the makings of a worthwhile deal that would satisfy liberals who want a nonprofit element in the health-care market and conservatives who don't want bigger government.

Steven Hill is a program director at the New America Foundation. His next book, "Europe's Promise: Why the European Way is the Best Hope for an Insecure Age," will be published in January 2010.


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