Dealbreaker: Five Reasons Co-Ops Will Fail

08/29/2009 05:12 am ET | Updated May 25, 2011

Now we're being told that "health care cooperatives" are emerging as a "centrist alternative" to the public health plan in the Senate. Ezra Klein reminds us that a public plan option wasn't in any of the other plans Democrats championed. We're hearing that the idea is gaining in popularity -- at least among a small group of U.S. Senators.

Well, why not? What's wrong with avoiding the stigma of 'government health care' by creating co-operatives instead? 'Co-op' has a warm, fuzzy, even socialistic sound to it, like the hippies who run the local health food store. Co-op plans like the Group Health Cooperative of Puget Sound deliver excellent care and get consistently high ratings from their members. If we can take some centrist Democrats off the hot seat and still have meaningful health reform, what's the problem?

Here's the problem: Co-ops will fail. They will be unable to deliver the kind of comprehensive and systemic reform that's needed to save the U.S. economy and ensure the health of its citizens. Here are five simple reasons why:

1. Previous plans, like the Massachusetts reform, haven't been 'game changers.'

Democrats and their Republican counterparts celebrated when the Massachusetts reform law was passed. There were a few of us who saw warning signs, but our concerns were not given much credence. Yet despite the fact that Massachusetts started out in better shape that much of the country, they haven't been able to provide systemic reform or insure all their citizens. The state has insured a lot of people, and we've learned from its experience. What's more, Massachusetts is looking at some new and creative ways to create meaningful change. Previous national reform plans didn't have the benefit of the Massachusetts experience -- where it succeeded and where it did not.

A few of us had concerns about some of these earlier national reform proposals back when they were first proposed. Still, Ezra Klein and others point to the fact they lacked a public plan option and ask, why did you support them back then? My answer is this: we've learned from experience.

2. Co-ops will be a localized, haphazard solution to a nationwide problem.

When Sen. Kent Conrad first proposed co-ops as an alternative to a public plan option, the discussion centered around "regional cooperatives." But we've had state cooperatives before. They haven't been able to provide fundamental change in the financing and delivery of health care, because they lack sufficient resources to compete against the seven mega-corporations that now dominate private sector health insurance. They may make marginal improvement in one market or another, but that's as far as they've been able to go.

In response, Sen. Conrad is now making statements like this one: "If somebody came forward and wanted to put together a national entity, they could do that. If various states wanted to join together to have a regional option ... nothing would prohibit either of those."

Sen. Conrad's use of the passive voice is probably not accidental. If somebody wanted to create a national, not-for-profit cooperative, we wouldn't stop them. If somebody wanted to create a multi-state organization they would not be "prohibited." But people don't create national organizations simply because it's not explicitly prohibited. A massive undertaking of that kind -- which would, incidentally, needlessly replicate the already-functioning infrastructure of Medicare -- would require billions of dollars.

But, hey, says Sen. Conrad. If you've got a few billion to burn, who's stopping ya?

3. Co-ops can't identify national trends and react accordingly

Here's an example of what a public health plan can and does accomplish routinely: Health Leaders Media informs us that a government analysis showed "doctors in certain geographic areas order a lot more unnecessary tests." Investigators found "questionable ultrasound scans for Medicare patients in 20 counties where they are performed more often per beneficiary."

Those 20 counties were in the far-flung states of Florida, New York, New Jersey, Texas and Alabama. Had we been talking about general health insurance under the Conrad plan, we'd be dealing with four or five regional cooperatives that don't share information and can't spot these costly and harmful trends. Fortunately, this data was provided by Medicare - that "socialized medicine" system everyone seems to hate like so much.

Large-scale data mining, study -- and yes, advisory panels -- will be a necessary part of our effort to modernize and innovate our health care system. A balkanized system of fragmented local organizations will not be able to contribute to that process in a meaningful way.

4. Co-ops can't fight monopolies.

Did you know that health insurance is typically exempt from Federal antitrust regulation? Good thing, too, because a recent study showed that 94% of US markets are "highly concentrated," according to Justice Department guidelines. Blue Cross dominates Arkansas, for example, with 75% of the market. This monopolization has led to skyrocketing premiums.

A cozy relationship between state politicians and mega-industry has fostered a system where most U.S. markets are dominated by a single health insurance player. On May 29, 2007, then-candidate Barack Obama said this in Iowa City, Iowa:

We'll investigate and prosecute the monopolization of the insurance industry. And where we do find places where insurance companies aren't competitive, we will make them pay a reasonable share of their profits on the patients they should be caring for in the first place.

That's a good idea.

How do monopolies -- especially ones with a cozy relationship to local pols -- respond to a new and idealistic intruder? They use the power of favorable contracting (with critical hospitals, for example) to drive the newcomer to their knees. Then they deal a death blow with artificially low premiums until the threat is gone. After that they go back to their old rapacious ways.

Remember: Federal antitrust laws do not necessarily apply when these hardball tactics start. "Forget it, Jake. It's Health Care Town."

5. Co-ops have no reason to keep living -- as co-ops.

Once we had a nationwide system of nonprofit health organizations. While each was local, they were tied into a loose national confederation. Since they were nonprofit, the idea was that their primary goal was to have the interest of their members at heart. The name of this national nonprofit organization?

Blue Cross.

In the last several decades Blue Cross organizations privatized themselves in massive numbers, with the help of supportive state and national politicians. There is no reason to believe that any cooperative will remain nonprofit if it becomes successful. The continued benevolence of any cooperative will depend on the direction and guidance it receives from politicians like Sen. Conrad. But even now, in the courtship phase of this process, Sen. Conrad doesn't hesitate to discuss the establishment of effective cooperatives with passive and indifferent language (see above.)

What will happen ten years from now, when a few executives have the chance to get rich by converting your cooperative to for-profit status? Can we count on state and national politicians to take a brave stand and refuse them, even in the face of the massive campaign contributions they'll be able to offer?

I think we know the answer to that.

Co-ops are not a bad idea -- if they are offered alongside a public option. As a replacement for them, however, they're a dealbreaker. They won't create the comprehensive, systemic change we need.

RJ Eskow blogs when he can at: