Senator Kent Conrad's office was not pleased with our piece on health care cooperatives last week. Health care cooperatives are private, nonprofit insurance companies whose members vote on the board of directors. The health care overhaul bill by Sen. Max Baucus (D-MT) would create cooperatives across the country to compete with private insurers. In the radio segment, health reporter Keith Seinfeld and I struggled to understand how cooperatives could gain market share and contain health care costs.
Senator Conrad (D-ND), the main cheerleader behind health care cooperatives, felt we missed the point by looking at cooperatives in today's health care environment. His office writes that, coupled with other changes to the insurance market from the Baucus bill, cooperatives would stand a good chance:
The insurance market reforms included in the underlying bill will do a few things that make it more likely that co-ops will be able to start up: first, the individual mandate requiring all individuals to get insurance means that the risk profile of the market will be changed in a way that will help new firms enter the market. Currently, in the individual market in particular, it would be an incredibly highly risky undertaking for any firm to enter the marketplace, since generally the people who get insurance in the individual market today do so because they are sicker or older (and therefore need insurance). Younger, healthier uninsured individuals generally have stayed out of the market. The individual mandate will bring them in, making the pool less risky.
Second, the bill would ban the use of health status rating and pre-existing condition exclusions — two tools that are actually pretty expensive administratively from an insurers' perspective. Alleviating firms of the need to hire the expertise and then compete effectively (as is currently the case in today's market) in selecting out risk will lower the operating costs of potential new entrants. One expert that we have worked with projects that in this new market, co-ops will operate more efficiently than commercial insurers because they will have lower overhead. This means the co-ops' premiums could be 8-10% lower than other health plans.
Third, the underlying bill would put in place an extensive risk management system in the individual and small group markets, including risk adjustments and reinsurance. These mechanisms will even out the "winners" and "losers" in the marketplace and ensure that co-ops have back-up mechanisms in place in case their brand name (i.e., particularly if any well-known health systems choose to start co-ops up) attracts riskier patients or in case they simply have trouble pricing their premiums accurately.
The Baucus bill sets aside $6 billion to create cooperatives in all 50 states. For some Republicans and moderate Democrats, the plan could be more palatable than the "public option" for federal health insurance.