Experts weigh in on nonprofit healthcare cooperatives

By Reuters Staff
July 30, 2009

Reuters.com asked members of our expert panel on healthcare reform what role, if any, nonprofit cooperatives should play in healthcare reform policy? Here are their responses:
(Updated at 14:35 ET on July 30 to include Ted Okon’s view.)

Wendell PotterWendell Potter is the senior fellow on healthcare for the Center for Media and Democracy in Madison, Wisconsin. The views expressed are his own.

The idea of nonprofit cooperatives being able to compete effectively with the cartel of large for-profit insurers that dominate the market today is so naive one has to wonder if the legislative language proposing their creation was written by insurance company lobbyists.

The proposal, sadly, reflects a shocking lack of understanding in Congress of how the health insurance industry now operates in the United States. Over the past 15 years, seven for-profit health insurers have become so large that one of every three Americans is enrolled in a plan owned and operated by those seven insurers. The consolidation in the industry has also resulted in 94 percent of insurance markets in America being controlled by a handful of big insurers, often just one or two in many of the country’s biggest metropolitan areas. This means that other insurers cannot enter the market and expect to be competitive.

If large, profitable insurers cannot enter markets dominated by competitors, cooperatives, starting from scratch, wouldn’t have a remote chance of succeeding. Creating co-ops instead of a national public insurance option that actually could compete with the big insurers would be a gift to the industry.

Peter_Pitts.JPGPeter Pitts is president of the Center for Medicine in the Public Interest and a former FDA associate commissioner. The views expressed are his own.

Leading Democrats on the Senate Finance Committee have expressed cautious optimism that they’ll be able to attract bipartisan support for their reform effort by substituting “nonprofit health cooperatives” for the highly controversial public option. The federal government would provide states with the seed money — some $6 billion — to set up state-based or regional co-ops.

But don’t be fooled — a nonprofit health cooperative is little more than the public plan by another name. Both would be government-funded. Both could offer policies in multiple states, outside the purview of state insurance regulators. And both would sound the death knell of private insurance by tilting the playing field irrevocably in the government’s favor.

After all, not only would private insurers remain governed by unique and often burdensome regulations in each of the states. They’d also have to compete against government-funded co-ops that would have the implicit financial backing of the federal government — and thus could charge artificially low rates without risk of insolvency.

If they have any hope of preserving individual choice in health care, lawmakers should refuse to cooperate with these cooperatives.

steffie-himmelstein-comboDr. Steffie Woolhandler and Dr. David Himmelstein are both associate professors of medicine at Harvard Medical School and primary care doctors at Cambridge Hospital. They co-founded Physicians for a National Health Program. The views expressed are their own.

The proposed cooperatives would add nothing useful to the healthcare landscape. Stripped of the resources that government would bring to the table, they would be under-resourced competitors sure to be swamped by powerful private insurers. The cooperatives under discussion in Washington would be small scale insurers, whose small enrollment would guarantee high administrative costs because the costs of computers, claims processing offices, utilization reviewers etc. would be spread over a small number of patients. And they would lack the resources to effectively compete by marketing to attract healthy, profitable patients and avoid the sick, unprofitable ones.

Ted OkonTed A. Okon is executive director of Community Oncology Alliance. The views expressed are his own.

Local and regional nonprofit health insurance cooperatives have been offered as a solution to the near monopoly power of private insurance companies. Unfortunately, history and market economics stand against cooperatives as an effective solution. First, we forget that we have already been down the road of having nonprofit entities control the healthcare market and have failed. Second, our country does not run by having nonprofit entities produce effective, cost-efficient products. Nonprofits are effective as advocates for causes but not as producers of products. The cost and expertise needed to create a cooperative that could compete with well-entrenched competitors would be prohibitive.

A better solution to the problem is a nonprofit entity running a tight insurance exchange that lists all insurance products and options in an easy-to-understand and transparent manner. Concurrently, local and regional markets need to be investigated to break monopolies where they exist and allow more competition by lowering barriers to entry.

17 comments

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So how do we stop the passage of these bills and have congress consider some realistic, less costly options like good nutrition(at affordable costs), exercise and weight loss? So much of illness is linked to obesity and with that goes increasing health care costs. What about a combination of healthy life style and major medical insurance?

Posted by elsi | Report as abusive

There is a typo in your credits for Mr. Pitts. Please note that his organization is actually the Center for Medicine in the Corporate Interest. Thank you for your attention to this matter.

Thank you, Wendell Potter. There’s a reason why no one opens up non-profit co-op grocery stores next to big box stores like Wal-Mart. It’s not because they compete on a level playing scale and the co-op wins. The co-op has to buy flour for $4.50 like everyone else, and then mark up the price to $5.00 to cover costs, while larger competitors basically name the price by threatening to not do business and/or create their own suppliers and put them out of business.

Maybe if the politicians would’ve thought about how great non-profits or small business was fifty years ago –when they still existed– this still would be an option. Not anymore. Either the government creates its own plan, or it gets involved and starts breaking up the giant competitors. I can tell you that the latter is even more unlikely with the money lining pockets, and all the meetings in dark rooms that are going on presently.

Not to mention, look at how well trust-busting worked with the oil, telephone, and software companies of the world.

Posted by Mark | Report as abusive

Please, please someone explain to me why preserving the health insurance industry is even being considered as a goal in this discussion? The myth of “preserving choice” assumes that choosing an insurance company has any actual value to an individual or family’s health. The nearly 3000 people who wait in a field in Virginia for days to be seen by physician or nurse or dentist aren’t there because they had Aetna and not Kaiser. They have nothing and after we create co-ops or even a public insurance plan, they will still have nothing. They need a National Health Service which then assigns caregivers to locations based on need, not market forces.

Posted by Michael Williams, MD | Report as abusive

“The Modern Era

Following the Second World War, the company continued to expand its manufacturing and research capabilities and the creation of the National Health Service in 1948 led to a vast increase in dispensing.”

Excerpt taken from Boots History, available at their website http://www.boots-uk.com/About+Boots/Boot s+Heritage/Boots+History

Posted by dan | Report as abusive

\\\”The Modern Era

Following the Second World War, the company continued to expand its manufacturing and research capabilities and the creation of the National Health Service in 1948 led to a vast increase in dispensing.\\\”

Excerpt from History of Boots,
http://www.boots.uk

Posted by Dan | Report as abusive

I think that if the federal government wants to compete with the current insurance companies, they should allow people to buy in to the VA system, which they already run.

By taking the money that would normally be skimmed off the top for insurance company profits, bonuses and payrolls, they can use that money to offer better salaries and better work conditions to their doctors expecting to get the very best there are.

Least complicated. Most fair.

Posted by Blaine | Report as abusive

Why are experts saying that the co-op idea isn’t effective? I’ve been a member of an electric co-op. The service was amazing. The people were great. And they didn’t raise rates for 17 years. 17 years! (The same can certainly not be said of the for-profit power company in the area, which appeared to raise rates every other year.) In addition, any profit made was paid back to the members of the co-op, and for seven years, I enjoyed a reduced electric bill every December. Given the chance, virtually everyone in the area would have jumped to the co-op in a second.

There are some highly effective health-care co-ops already existing in this country (Washington state, for example, which has over 500,000 members if I remember correctly). And in those areas of the country, they “surprisingly” enjoy reduced health-care costs and better health-care results.

The opponents of co-ops are generally the businesses that have to compete with them. Understandably. This is why many have dissolved, rather than because they were ineffective. A health-care co-op option could be a brilliant solution. At this time, we need more details, but I for one am encouraged to see that our government is for once considering a new idea. One that could actually work.

Posted by Sue | Report as abusive

“…both would sound the death knell of private insurance by tilting the playing field irrevocably in the government’s favor.”

Has anyone else noticed how the argument regularly comes down to an ideological preference for private insurance rather than any founded claim that private insurance actually yields better health?

Am I the only one who thinks that the goal of healthcare should be healthy people (versus healthy profits)?

QUICK: The government takes care of high catastrophic costs for patients. Private handles costs less than 3X paid premiums and government takes costs greater than 3X paid premiums

Long:
The one solution not mentioned in the whole debate is the insurer of last resort. The primary reason for private insurance being expensive and hard to get for those that really need it is that they can not make a profit from really sick people. Those that have an income too high for medicaid but also have a pre-existing condition are the people who are the problem(not those people personally). The for-profit or non-profit would both have trouble with them. Neither wants to lose money. Instead I propose that the government comes in as the insurer of last resort. They would not sell direct insurance but would instead provide a fund that could be tapped when an individual incurs a bills that are 3X what they have paid in premiums (number can be modified). The insurance companies would have the incentive to hold down costs and plan premiums, while being able to offer insurance to more people. In return a few regulations could be added like; people can not be dropped if premiums paid and pre-existing conditions can affect rates but policies can not be refused.

The rate of insured is increased, cost can be reduced, and government is used only when it really is needed. Just don’t kid yourself that the government option is going to compete fairly. That is like the NFL refs getting together and forming their own team.

Eighty percent of Americans have health insurance and of those 80%, 70% are pleased with it, therefore, I think the word ‘crisis’ needs to be removed from the discussion.
In President Obama’s news conference his slip of the tongue revealed much. He either stated or implied that physician’s make medical decisions based upon their reimbursement. This is offensive, and not globally true enough to account for the ‘high cost of health care’ in this country. I think his inclusion of this comment in a nationally televised media event reveals that he sees the major contributors to the problem in the health care delivery system as being greedy insurance companies and physicians.
Heads up: Primary care physicians make the same per visit regardless of the outcome of the visit. This means that if I diagnose you with tonsillitis and give you a prescription for an antibiotic OR if I do that and refer you for a surgical consultation for a tonsillectomy I AM REIMBURSED THE SAME. Primary care physicians bill in accordance with billing codes (created by the government once Medicare/Medicaid were established) based on medical complexity and to a lesser extent labs ordered to diagnose the problem.
Insurers (these monstrous monopolizing companies) profit margins are under 10%.
Pharmaceutical companies profit margins are 80%.
The majority of the current expenses in health care occur in the emergency room. These billing codes are higher, and rightfully so as the seriousness and complexity of problems managed in these settings require more time and resources. HOWEVER, the ER in our country is over run with the uninsured, the Medicaid population (no copays for utilization) most of whom either cannot or will not access a PCP for routine issues. It “costs” an incredible amount MORE MONEY to treat non emergent conditions (i.e ear infections, colds, minor scrapes) in the ER. Do not underestimate this contribution to our problem
In addition, the next big major cost to our health care system occurs in the intensive care units – i.e the elderly, the neonates, the traumatically injured and deathly ill. The amount of money it costs to provide this kind of care is beyond belief (physicians, equipment, ancillary staff, medications, research, etc). For the cost cutting measures our President has suggested, I suspect that a million incidents of cost savings would have to occur to pay for a single person’s care in the above mentioned situation. I am not exaggerating.
In a public run insurance program the intensely ill will be affected – do not kid yourself. The care to these patients is astronomical and NOT because there are 20ish% of the American population un/underinsured. Older individuals for whom hundreds of thousands or millions of dollars of care would not be cost effective WILL BE DENIED – where will their recourse lie? If they do not have the money to foot the bill like a more wealthy individual they will simply be at the mercy of a government program. And premature infants (for whom outcomes have become impressively awesome over the past 20 years) with brain, lung, gastrointestinal, surgical, nutritional, ophthalmolgical, cardiac and developmental issues spanning several years of treatment – what of them?
These are the types of specifics that actually do matter and have not been addressed. I think the informed American people do care about the details as one’s ability to discuss them reveals that person’s understanding of the full issues involved in the problem.
Finally, since so much of the cost of health care takes place in hospital emergency rooms where litigations are the highest (ER doctors and OBGYN’s have the highest malpractice insurance of all healthcare providers because they are named in claims most often – in the ER generally because there is little time for patient/doctor relationship to transpire) WHY IS NO ONE DISCUSSING TORT REFORM? Has it become that cliche? Can we please hear a discussion at least regarding the impact this has on the cost of health care? Why not address multiple elements of the problem, rather than just focusing on getting people insured?
I am for charity. I am for seeing a people and need and acting on it – as an individual. I am not for the impersonal, largely unaccountable federal government trying to do MY JOB. If you know someone struggling – help them. Pay for something they need. Give them advice. Give an opportunity.

Posted by melissa Robert | Report as abusive

The only reason the government is walking down the federal insurance or federal non-profit path is because it is to much of a coward to do the right thing. The only way to ensure the that the people of the US are not being ripped off and get the proper health care they deserve is for the government to capitalize the health care industry and offer its services to all. First this eliminates health insurance totally. Second, if forces the providers of pharmaceuticals, equipment and other supplies to deal with the government if they want to sell their products. No longer will you see these companies as the top earners of the Fortune 500 and raking in outrageous profits at the Peoples expense. Many may think that the government cannot handle such a task but I ask you to remember that the government has been in this business for many years. They already run a health care service with hospitals across this nation. They service our men and women in uniform and their dependents and retirees and have been doing a very good job for a very long time. Such a step would eliminate totally the insurance profits from the equation. It would control costs by limiting law suits and pharmaceutical profits. We need to understand where costs come from. I do not think most of us would want to cut costs that directly effect our care. It is these unnecessary profits these corporations are skimming off our us we want to eliminate. If you force limits on wait times you can insure that the necessary services are available when needed. It is unfortunate that as long as we continue to use income tax as the main source of revenue for our government that only those with above board income will be paying for all this health care. This would be more fair if we replace the income tax with a national sales tax. Then even illegal aliens and gangsters would be paying their fair share for this program.

Posted by B.Free | Report as abusive

why don’t congress just stop working on healthcare and allow the people decide what they would like to have?
our children and grandchildren will have to pay for all the programs that th;is administration had started, and please don’t tell me that it they were needed.

Posted by allen | Report as abusive

Should we not try to fix and or make revisions to the current healthcare system rather than reinventing the wheel? If the govenment thinks that co-op programs can compete they are sadly mistaken. Doctors and medical facilities are choosing not to accept medicare patients because of the small reimbursements they receive…..Is the government going to reimburse the doctors more than what the insurance companies reimburse them? I think not!

Posted by Constantine | Report as abusive

1. The Rural Electric Cooperatives in this coutry have been competing quite well for decades, despite their competitive disadvantages (ie, lower density and higher cost per customer) their members pay some of the lowest electric rates in the country.

2. Even if the cooperatives paid the same rate to doctors as any of the insurance companies, their plan would be cheaper for their members because the profit that goes to investor-owned insurance shareholders would instead be returned to the members of the cooperative.

3. Why would it matter if private insurance companies were forced to compete (as investor owned utilities do in the power world)? Mr. Pitts, the cooperative is not a “government” system. Insolvency would still have to be avoided. Why wouldn’t it be? It would be run by a board of directors elected by the insureds and, ideally, independent of government control.

Posted by Shawn | Report as abusive

Hi,
I’m Canadian and like the vast majority of my countrymen, I am happy with our health care because we spend less, live longer, and have lower infant mortality rates than our American cousins. The Canadian government spends less per capita than the US government, but the really convincing proof for myself is that in total (government and private) we spend roughly 2/3 of what is spent per capita in the US.

I know of no one who has had to mortgage their house because they got sick in Canada because we consider access to healthcare a right, not a privilege. There are some failings and in particular we are fighting to get wait times down for some procedures, but my extended family and I have never had any problems getting the care we need, when we need it.

Many Americans may not be aware that the CBC (our largest and most influential broadcaster) recently ran a competition to determine who the greatest Canadian of all time was as voted on by millions of Canadians. It included our founding fathers, Wayne Gretzky, Brian Adams and many others, but the man who won was Tommy Douglas, the inventor and Prime Minister responsible for our public health care system.

In a nut shell, we Canadians would never trade our system, it works well, and I think that it would be wise and fiscally prudent to consider its merits as well as its failures.

Posted by Craig | Report as abusive

[...] if any, nonprofit cooperatives should play in healthcare reform policy? Here are their responses: The Great Debate

As the HR person in a small company of 12 aging employees I feel that a co-op would be the perfect solution. What I need is to be part of a larger group that doesn’t have to go thru that horrible under-writing process only to be rated up to the highest rate.

Posted by Sally Alexander | Report as abusive