health insurance co-ops are not a real alternative to private health insurance and they are not a substitute for a strong public plan option, and we should not suggest to the American people that they would be.
Sen. Rockefeller did research on the history of coops and the applicability to the heath insurance field. He wrote letters to the National Cooperative Business Association (NCBA), the United States Department of Agriculture (USDA), and the Government Accounting Office (GAO) requesting detailed information about the current role of insurance coops in the heath care field.
In his letter to Baucus and Grassley, he describes what he found out as "astounding."
Wendell Potter tells Ed Schultz that Max Baucus' bill is a joke.
During a hearing of the House Democratic Steering and Policy Committee Rep. Mazie Hirono asks Wendell Potter, Former Communications VP/Spokesperson for CIGNA, and J. James Rohack, MD, President of the American Medical Association (AMA), about the idea of health co-ops, What Potter calls the Baucus "Insurance Industry Profit Protection and Enhancement Act".
This morning on CNN, Sen. Kent Conrad (D-ND), the author of the health care co-op proposal that is apparently gaining traction among many Democrats, argued it’s a “very successful business model.” But when host John Roberts repeatedly pressed Conrad on whether the creation of non-profit, member-driven health care cooperatives would drive down costs for consumers, Conrad acknowledged they would not:
ROBERTS: What would they do to reduce costs? Because that is one of the central issues of health care reform.
CONRAD: Well, the important thing is they’d provide more competition. … Beyond that, I think it’s very important not to over-promise here. [...]
ROBERTS: So nothing really in driving down the costs of service then?
CONRAD: Uhhh, no. If you believe competition helps drive down costs, then they would certainly contribute to holding down costs.
While Conrad emphasizes the “competition” that health care co-ops would provide to private insurers, health care experts argue they would be too weak to have a major impact. “It’s very difficult to start up a new insurance company and break into markets where insurers are very established,” said Paul 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.” The New York Times adds that the history of health care co-ops has not fared well
If we would only pay attention to history, we would know that co-ops will fare no better than exchanges. Many co-ops were started during the 1930s in the years of the Great Depression, only to fail in most instances despite initial government subsidies. Most of these co-ops never reached sufficient size to either become financially viable or to counteract market problems. Only a few have succeeded over the years. An excellent example is Group Health Cooperative in Washington State, which today has some 600,000 members in an effective integrated health care system. But despite its reliance on salaried physicians in a large well-managed group practice, it still has to compete against its competitors and has almost as much trouble containing costs. Group Health today has only a 9 percent market share in Washington State. It has increased its premiums by an average of 12.3 percent a year since 2000 (four times the rate of inflation) (Link to Sack, K, Health co-op offers model for overhaul. New York Times, July 7, 2009: A1), and is raising its premiums in 2009 by 13 percent (compared with 17 percent by Regence BlueShield). (Link to Song, K.M. Health-plan costs soar for individuals. Seattle Times, July 9, 2009)
Proponents of co-ops today grossly underestimate the difficulty in setting up co-ops, both in terms of start-up costs and lead times in the best of cases. It took Group Health 62 years to reach an enrollment of 500,000, which many health analysts figure is the minimal viable size. As a champion of co-ops, Senator Conrad acknowledges that start-up funding would be high for co-ops, requiring some $4 billion, while others estimate $10 billion. (Ibid, Sack above)
So where does all this leave us in this summer of discontent over health care? Despite the vigorous efforts of the Administration and many members of Congress, exchanges and co-ops won’t work. They won’t make health insurance more affordable. They are a political compromise position in an effort to gain bipartisan support for a bad health care bill. Beyond not fixing the insurance problem, they won’t contain runaway costs of health care. But that is the subject of the next post.
The U.S. General Accounting Office produced a report on cooperatives in March 2000 that was mostly sour on the idea. Using five different co-ops as examples, the study concluded that on the key function -- lowering the cost of insurance -- these non-profit insurance pools came up well short.
"The cooperatives' potential to reduce overall premiums is limited because (1) they lack sufficient leverage as a result of their limited market share; (2) the cooperatives have not been able to produce administrative cost savings for insurers; or (3) their state laws and regulations already restrict to differing degrees the amount insurers can vary the premiums charged different groups purchasing the same health plan."
A quartet of moderate Blue Dog Democrats on the Energy and Commerce Committee agreed to support the Democrats' sweeping health care bill as long as party leaders postpone a House vote until the fall and Chairman Henry Waxman (D-Calif.) cut its costs by $100 billion, exempt more small businesses from a requirement to provide health care to their employees and allow doctors, hospitals and other providers to negotiate their payments directly with the government under any public coverage plan.
News of this breakthrough follows some rare positive news for Senate Democrats from the nonpartisan Congressional Budget Office; legislation being cobbled together by a bipartisan group of six senators on the Finance Committee would cost less than $900 billion and cover 95 percent of Americans.
The new version of the bill would allow for states to set up health care co-ops, which the Senate Finance Committee has advanced as an alternative to the government-run insurance plan advanced in the House. The House bill still includes the public insurance option, but liberals are concerned that the co-ops create a backdoor for states and insurers to avoid using these public plans.
In the deal, Waxman would have to cut somewhere in the neighborhood of $50 to $65 billion in subsidies to help lower-income people purchase insurance through the newly-established exchanges and another $30 to $35 billion from Medicaid.
But allowing doctors and other health care providers to negotiate rates with the government under a public option would cost the government about $60 billion, according to a preliminary CBO estimate. And exempting small businesses with a combined salary of $250,000-a-year to $500,000-a-year would cost the government $30 billion, according to the same estimates.
