Some Thoughts on Co-Ops That MIGHT Work

A couple of my friends across the political spectrum sent me these interesting articles on the Co-op idea proposed in the Senate:



In my opinion, Co-ops are the best approach to:

  1. covering the uninsured, especially those with pre-existing conditions; and
  1. replacing both employment-based and government-provided health care for many people.

The heart of this concept is that providing health benefits is not a core business of any employer: building power generators; practicing law; or doing roof repair is.  As a result, few employers are as good as they would like to be at managing cost; access; and quality.  Some, like GE and Safeway, are good at this, but they are mostly large, self-insured ERISA Plans, which cover fewer workers in this age of increasing contingent employment.

These Co-ops would not replace Payors, but would instead replace employers as buyers.  If you build effective Co-ops, you could give more people access to quality heath care of the type available to, for example,  GE employees or Federal employees covered by the Federal Employee Health Benefit Program (“FEHBP”).  Additionally, since these Co-op entities would ideally be closer to the participant and beneficiary than either employers or the government, they would potentially have the legitimacy to say “no” when “no” is required.  This is  a vital trait as the emergence of Preferred Provider Organizations (“PPOs”), and their rapid market dominance over more intrusive HMO products, demonstrated that private payors, especially for-profit ones, lacked this legitimacy.

Workable Co-ops should:

—be benefit managers and buyers, not insurers and payors, essentially filling the role employers have had since World War II;

—be built around existing not-for-profit entities that already offer health insurance programs (e.g., ABA, VFW, Chambers of Commerce and Unions); this program should not be “earn while you learn;”

—be able to bargain with payors, leveraging the number of members into substantial discounts; have the protection that exists with employment-based coverage for people with pre-existing conditions;and premiums paid by members should be tax deductible or receive a tax credit

—be set up so that Employers would be able to deduct or receive a tax credit for payments made to co-ops that cover their employees;

—be regulated as charities by the states where they operate and by the Feds as entities operating in inter-state commerce;

—be built from extensive revisions of ERISA and US Dep’t of Labor Multi-Employer Welfare Arrangement (“MEWA”) rules: and

—offer Plans and programs built around the needs of their members: the UAW does not need Plans covering elective cosmetic surgery; the Screen Actor’s Guild might.

          Finally, this is not an attempt to vilify payors.

          Payors, generally today for-profit companies with a fiduciary duty to their shareholders, maximize their return for those shareholders by offering a popular product (PPO Plans) at the price the market will bear and by getting a low price from suppliers (Doctors and institutional providers, like hospitals).

          Employers generally don’t drive hard bargains, not least because they can drop coverage if the expense becomes onerous and because they are in the “widgets” business, not the health care business.  While employers who sponsor ERISA Plans have a fiduciary duty to the participants and beneficiaries of their ERISA Plans, they also have a state-law fiduciary duty to their partners or shareholders to maximize returns.  What we need is a mechanism, like the Co-ops, to bargain for lower premiums, leveraging membership and with a clear fiduciary duty to that membership, unlike an employer’s naturally divided loyalty.

          Once such a working Co-op structure is in place, doctors, payors and hospitals can use statistical techniques of measuring quality and performance to justify higher prices, where demonstrated quality demands a premium.  Until the kind of market forces described here with Co-ops support this, even with existing statistical tools to measure performance developed by Dr. Don Berwick and others, the discounted-fee-for-service race to the bottom will continue and Medicine will remain a volume business.

          As GEN Clark used to say, “There are two kinds of Plans:  those that can’t work  . . . and  . . . those that might.”  Properly executed, Co-ops are a Plan “that might work.”