Insurance Groups Wary of Co-Op Alternative in Health Reform

Though one idea for an alternative to the health reform debate's "public option" has emerged prominently -- the proposal for customer-owned, co-operative insurers -- the insurance industry isn't leaping to embrace it. Most industry groups are holding back their opinions until more details are made public on the idea, which is among the points under negotiation in a bipartisan group in the U.S. Senate's Finance Committee.

"We have not seen any specifics yet on what the proposed co-op might look like," said Robert Zirkelbach, spokesman for America's Health Insurance Plans. "That being said, any time an entity can be both a player on the field and the referee, there is every reason to believe there will not be fair competition."

The co-ops would be customer-owned, run as nonprofits and initially be funded by the government. Beyond that, there are few details available. The insurance industry already knows it doesn't like the other proposal, the public option that would establish a government-run health insurer to compete with the private marketplace. Industry criticism focuses on the potential of such a government competitor to drive private companies out of business.

Like AHIP, the National Association of Health Underwriters is concerned the co-ops would also undermine fairness in competition. "NAHU is concerned about the very same 'level playing field' issues that apply to a government-run public plan would still apply to any co-op hybrid," spokeswoman Kelly Loussedes said in a statement. She suggested a lot of questions remain: "Would co-ops pay state premium taxes like private plans? Would they be held to strict solvency standards like private plans? Would they be able to be sued like private plans?"

The National Association of Professional Insurance Agents has been busy lobbying members of Congress, talking to the lawmakers about health-care issues while they're in their districts for the August recess. But the group isn't yet sure where it stands on co-ops, an idea "that has yet to be developed," said spokesman Ted Besesparis. A draft outline circulated by one senator involved in the debate "seems to be a place-holder for future discussion that lacks details, and the devil is always in the details. If a more definitive proposal begins to take shape, we'll examine it to see if it is consistent with our organization's policy."

Both AHIP and NAHU argue that the best solution is a bolstering and reform of the existing private market. Zirkelbach pointed to the proposal put out by the industry months ago. "We have proposed guaranteed coverage, no pre-existing condition exclusions, no health status or gender rating, and a personal coverage requirement to get everyone into the system. These reforms will work, they have broad support, and then can be sustained."

"We can achieve increased choice and competition for consumers through common-sense private market reforms," Loussedes said.

While most of the insurance industry is uncertain what health care co-ops might look like, the National Risk Retention Association has some experience with a similar idea. Risk retention groups, though they provide only commercial liability insurance, "have to be owned and controlled" by members, said Robert H. Myers, general counsel for the association. The parallels, though, might not extend to marketplace scale. RRGs represent 2% to 3% of the commercial liability market, while the health co-ops would probably represent a much larger stake of health business, said Myers, who is a partner at Morris, Manning & Martin in Washington, D.C.

In the case of this health insurance concept, "it's hard to say exactly what's being intended by co-operatives," Myers said. "Normally, they are entities put together for the benefit of their members. The most common form would be agricultural cooperatives," in which individual farmers combine their efforts to increase their market strength. If the co-ops are regulated federally, Myers said, it would "cut through overlapping and conflicting state regulatory constraints."

And instead of the government running things, "people would be taking more control of their own futures, which seems to make sense," he said.

The industry will likely have to wait until at least September before it gets a true sense of whether the co-op idea will become a genuine contender in health reform. That's when Congress returns to its session, which is expected to be dominated by the health care debate. If the bipartisan group of senators comes to a deal, co-ops could be part of a bill out of the Finance Committee. If it doesn't, then Democrats-only legislation may swing back to match the four versions of health legislation that have already passed through committees -- each featuring the public option as a central component.