The Co-Op Co-Opt: Why They Can't Reform Health Care

Some members of Congress are pushing the idea of nonprofit health co-ops as an alternative to a public health insurance option. According to a July 6, 2009 article in Congressional Quarterly [1]:

"The [Senate] Finance Committee would set up consumer-owned “co-ops” that would essentially function as nonprofit insurers to compete against private health insurance companies. The proposal is seen as a compromise designed to attract moderate Democrats and Republicans.”

But this is not “change.” Nonprofit organizations have always had an important role in the financing and delivery of health care services in the United States. Nonprofit health care organizations are part of the U.S. economy’s “third sector,” the other two sectors are government and for-profit businesses. In the early 1900s the first health care prepayment/insurance plan was founded as a nonprofit organization—Blue Cross—by a nonprofit hospital in Texas. Today, nearly 50 percent of people [2] with private health insurance coverage are enrolled in nonprofit health plans.

Unfortunately, the strong and persistent presence of private nonprofit health insurance companies has not prevented any of the structural problems leading to our current health care crisis.

• Private, Nonprofit Health Insurance Does Not Promote Competition.

  Today, 84 of the 138 private health plans (61 percent) in the United States with at least 100,000 enrollees are nonprofit [3]. Yet consolidation in the private insurance industry has narrowed price and quality competition. In 2008 the PPO/HMO industry’s market power was considered highly-concentrated, or anti-competitive [4], in 94% of metropolitan areas. A public health insurance plan option coupled with more regulation of health insurers will break the stranglehold that a handful of private companies have on the market. Most importantly, these reforms will enable consumers to vote with their feet and switch out of plans that don’t satisfy them.

• Private, Nonprofit Health Insurance Does Not Control Costs.

  While health care cost growth is unsustainable for individuals, businesses and the government, nonprofit status does not mean private insurance companies do not waste money. For example, many nonprofit insurers across the country have been abused by their officers and directors. For example, “Blue Cross Blue Shield of Maryland and its sister plan in the District of Columbia were poster children of nonprofit corruption and incompetence, squandering their assets on ego-building but money-losing diversification initiatives and on lavish executive lifestyles that devoted more days per year to jetting around the globe than to paying insurance claims back home,” according to one study [5]. A public health insurance plan with public accountability and national purchasing reach would be able to slow health-cost growth and, through competition, keep private insurers honest and force them to become more efficient. Between 1997 and 2006, spending grew 59 percent faster [6] for private plan enrollees than for Medicare beneficiaries. If private plans—either for- and not-for-profit—drop had controlled growth as effectively as Medicare, insurance premiums would be much lower than they are.

• Private, Nonprofit Health Insurance Does Not Provide Stability.
  Experience with Medicare private health plans shows the disruption caused when all kinds of private insurers drop out of geographic markets, change benefits, contract with different doctors and hospitals, or boost out-of-pocket responsibilities for patients. While for-profit insurers withdrew from the Medicare program more frequently, nonprofit insurers have also abandoned [7] their Medicare members. A survey [6] of Medicare private health plan members whose plans were scaled back or terminated suffered financial harm damaged their physical and mental health. Among enrollees seeing medical specialists, 22 percent reported they had to stop seeing that doctor, and 15 percent said they had to forgo a prescription drug after leaving their former plan.
• Private, Nonprofit Health Insurance Does Not Advance Innovation.
  While private nonprofit insurers in some cases have been found to perform better [8] than for-profit insurers on several health outcomes measurements, they do not have the clout to drive other insurers and providers to adopt their practices. In addition, since they still have to compete with for-profit insurers and have fewer options for raising capital than companies that can sell shares to Wall Street, they have no incentive to share best practices with industry competitors. A new public health insurance plan would spur the development of innovative and transparent payment mechanisms, quality-of-care incentives, and evidence-based protocols. A new public health plan could follow the achievements of the Department of Veterans Affairs and Medicare and adopt large-scale use of electronic medical records, incentives for greater integration of delivery systems and improved measures of quality.

Don’t be fooled! Co-ops will not fix out broken health care system. A strong, national public health insurance plan [9] option is needed to bring down costs and make coverage affordable.

Stand with President Obama and Dr. Howard Dean to demand the choice of public health insurance by writing your Senator today [10]!