Health Co-ops Emerge As Weak Substitute

People tend to get a warm feeling when they hear the word "co-op." Rural electric cooperatives helped farm families get electricity in the 1930s when utilities wouldn't string transmission lines to them. Many modern businesses -- outdoor equipment retailer REI and dairy products producer Land O'Lakes, for example -- are cooperatives, governed at least in part by their member-customers.

But that warm, heartland sentiment doesn't necessarily apply to health care co-ops, fast emerging as the chief rival to President Obama's proposal for a "public option" health plan that would be a powerful new competitor for private insurance companies.

The primary attraction of health co-ops seems to be that they're more politically palatable than the public option, not that they're a better idea. In fact, there are plenty of reasons for skepticism.

The simplest public option is to let people without employer-provided health insurance to buy into Medicare, or a similar program, at cost. It would pay doctors and hospitals rates close to what Medicare pays, and it could be a powerful engine for holding down costs. Since it could build in part on the existing Medicare system, it could be up and running at the national level reasonably quickly.

Not surprisingly, private insurers aren't keen on the public option, and there's furious opposition from Republicans and some Democrats who recoil at the thought of "government-run" health care -- even though they have little or no objection to Medicare, the government-run plan that already covers about 45 million people.

Opposition in the Senate is so strong that some negotiators have concluded the public option is dead there. The co-op idea, championed by Sen. Kent Conrad, D-N.D., arose as an alternative free of the "government" stigma to provide competition for private insurers.

There's nothing wrong with co-ops, per se. Their appeal is that they'd be a sort of kinder and gentler version of private insurance.

But press some co-op enthusiasts for details, and there's a lack of clarity about how they'd get started, how much the start-up would cost, how long it would take, how they'd grow big enough to compete with private insurers, how they'd significantly differ from the original state Blue Cross/Blue Shield organizations and, most importantly, how they could save serious money.

History is not encouraging. Hundreds of health co-ops were formed after the Depression to provide medical care in rural areas, and nearly all of them failed. Even the one considered most successful -- Group Health Cooperative of Puget Sound in Washington state -- took more than 60 years to reach the roughly 600,000 members it has today. (Conrad says a co-op needs at least 500,000 members to have market clout; private WellPoint insures more than 30 million.) Nor does Group Health have a stellar record of holding down costs; since 2000, its annual premium increases for individuals have averaged 12.3%, less than many private insurers but still about four times the rate of inflation.

Reducing health care spending is crucial for the system to survive, and it's hard to imagine co-ops ever being able to force doctors, hospitals and patients to cut costs as much as a public option might. That takes real muscle, not nostalgia and fuzzy feelings. The co-op alternative

Under a plan being considered in the Senate:

*Non-profit, member-operated health cooperatives would be created to compete with insurers.

*The government would provide seed money -- in the range of $6 billion -- to help doctors, hospitals, businesses and other groups start co-ops.

*Co-ops could be formed at the national, state or local levels. A temporary government board would help get things started.

*People and small businesses would be able to buy co-op memberships through state insurance exchanges.

Source: Reuters