Health Insurance Co Ops

Health Insurance Co Ops

As legislators continue to debate the viability of the “public option” for health care—that is, a government-run health care marketplace for those who are looking for insurance options and unable or unwilling to get them through work or elsewhere—one idea that keeps being floated is a health care co-op. East Coast Health Insurance (http://echealthinsurance.com) a national health insurance brokerage has been vocally supportive of any health care option that extends medical coverage not health insurance to more people.

A health care co-op, briefly, is a group of consumers who have banded together to provide insurance and health care options and is run by members. The people who are a part of the co-op, those it cares for, are also its governing body and manage costs, structure, organization, negotiation with doctors and providers, etc. ECHealthInsurance believes that the mutual form of health insurance has been polluted by the current not for profit health insurance companies that seem to all have private jets.

There are co-op concepts out there for things such as power, and more widespread in the Midwest for farms. The benefit that many see in co-ops is that it puts insurance decisions and management in the hands of people themselves, instead of large companies, without involving (or over-involving) the federal government.

It certainly sounds like a great alternative, especially if the public option doesn’t eventually get passed. The reality is, however, that a health insurance co-op (with two notable exceptions, in Minnesota and in Washington) hasn’t been able to succeed in this country. One of the major reasons is the strength of the insurance companies, who have already established billing and relationships with many providers out in the marketplace today. As any doctor or hospital will attest, working with established insurance companies is enough of a challenge (submitting forms, paperwork, etc just to get paid)—they are unlikely to want to take on additional smaller groups (such as co-ops) who will not have the market strength to negotiate on prices, access to providers, etc. In fact, it’s argued that a co-op might have difficulty in even getting through to talk about their plan; the system is fairly closed right now with caregiver and provider relationships fairly locked in.

Furthermore, if the point of a co-op is to improve competition in a market—in order to get better pricing across the boards for anyone seeking insurance—that argument is quickly lost in the reality of a small group of even very intelligent and well-prepared co-op members trying to take on major insurers to get better pricing. The lack of competition in the health care marketplace today means that major insurers are able to for the most part control pricing according to their terms and a small co-op will be unable to compete.

The reality is that there are only a few major insurers per market, who consumers have access to. There are a large number of insurers in the US, to be sure, but per market these companies have done their homework to determine where it makes sense for them to offer options and care. They are not going to go into a market that is already provided for by multiple carriers and try to compete and bring down prices; instead, many focus in major areas. A co-op is unlikely to survive against a large company who offers insurance options in a given area, if the main point is to be able to provide lower cost care.

There are also other obstacles to creating and running a successful co-op; it is far more complex, for instance, than sitting on your homeowners’ board. There are state licensing requirements, administration fees and costs, and a huge amount of knowledge that is required with regard to health care policy and providers. The start up costs alone are fairly staggering, with regard to establishing a brand and presence, retaining members, and negotiating any contracts.

The appeal of a co-op—especially for those who are familiar with the concept, such as those who participate in a power co-op—is that they are taking on the big insurers without government help. The reality is that without government help—for start-up costs, insurance regulations on pricing, who is covered, and the like—it’s likely too difficult to maintain and succeed at such a venture.