Stanford Progressive

Healthcare Cooperatives: A Politically Palatable but Paltry Alternative

By Ilias Karim, published September, 2009

One of the main cornerstones of Presi dent Obama’s proposed health insurance reforms is government-backed health insur ance. Such an insurance plan would be run by the government somewhat like Medi care is today, to provide a public health insurance option to Americans in addition to the options already provided by private health insurers today.

However, public health insurance is proving to be a sizable stumbling block for passing health insurance reform. Obama is seeking bipartisan support from the Senate to pass health insurance reform, and Re publicans oppose a public option on prin ciple, because it dramatically increases the government’s role in health insurance.

Healthcare cooperatives have recently emerged as a politically palatable com promise in the debate over health insur ance reform. In August, a bipartisan group of Senators serving on the Senate Finance Committee proposed healthcare coopera tives as an alternative to government health insurance under fears that Republican op position to federal health insurance would prevent the passage of any health reform bill. A healthcare cooperative is an institu tion owned by its members and structured like a nonprofit. It uses its collective bar gaining power to arrange a better mutual insurance plan for its members than indi vidual members would be able to arrange by themselves.

The cooperative concept is widespread in other sectors, but relatively few health care cooperatives exist today. One reason for this is that congress does not allow an organization to combine non-profit status with mutual insurance status. Even if this restriction were removed, however, coop eratives would still need to be jumpstarted with federal government support. The bill proposed by the finance committee would inject cooperatives with seed money to get their feet off the ground.

At first glance, healthcare cooperatives may seem like the ideal middle ground in the health insurance reform debate. Liber als do not trust private insurers because pri vate insurers are driven first and foremost by profit, and conservatives do not trust the government because of the economic inef ficiencies generally introduced by govern ment involvement; cooperatives are neither for-profit insurers nor government-run. By the same virtue, however, they do not actu ally achieve any of the goals of healthcare reform. They fail to offer the savings of a federal insurance plan, which would con solidate administrative overhead, or to cre ate strong competition for current private insurance companies.

Healthcare cooperatives are not a fun damentally poor idea; they are just a poor alternative to a government health insur ance plan. The only way for healthcare cooperatives to even come near to offering the same benefits of federal health insur ance would be for the federal government to assist in jumpstarting a national health cooperative, which would be a lengthy and expensive procedure. Bloomberg estimates that such a system may take a generation to pay off, even with $10 billion in seed mon ey. In the end, a government-sponsored na tional health insurance cooperative would resemble public health insurance more than it would resemble the health cooperatives that exist today.

The only benefit to healthcare coopera tives, over a government health insurance plan, is their political palatability. They do not carry the stigma of a direct government market intervention, but the shortcomings of such an “alternative” show that govern ment intervention into the health insurance market is precisely what is needed.

In order to pass health insurance reform through congress, Obama will inevitably have to make more than a few compro mises, but these compromises should not undermine the very goals that we hope to achieve through reform. Health insur ance cooperatives would fail to establish a benchmark for quality and efficiency of care while controlling costs, which is ex actly what Obama intends a public health insurance plan to provide.

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