Health co-ops revisited

Things quieted down on the health reform front for a while, but now it turns out that the “co-op option” is still very much in play. And unfortunately, there are still people out there jumping to the conclusion that it can’t work.

I think it is a great idea to look critically at this idea, because I’ve been involved in enough co-op development efforts to know that it is common for such efforts not to result in a successfully-launched cooperative. I would also hate to see co-ops blamed for a failed attempt to solve a possibly unsolvable problem. I appreciate that many people have concerns and will write about them; I’ve blogged about my own concerns several times. 

However, I  have a problem with misinformation like RJ Eskow’s recent article at Huffington Post. He presents “Five Reasons Co-ops Will Fail,” and they are a toxic mix of irrelevance and inaccuracy that demand a rebuttal. I’ll respond to each of his supposed reasons:

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

This is utterly beside the point. The Massachusetts reform didn’t involve co-ops. Maybe it would have been more successful if it had.

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

Not necessarily. The Senate Finance Committee’s discussion has also included exploration of a single national co-op. MSNBC reports that “Accountants versed in health care told the bipartisan group that the co-ops would attract 12 million people, making it the third-largest provider of health insurance in the country. ” The reporter seemed to be a bit confused about whether this is singular or plural, but in any case the nation’s third largest provider would not be particularly localized. “Haphazard” is another story, as there would be a risk that the rush to get the co-op plan online could result in mistakes; but that is a reason for caution and care, rather than an inherent flaw.

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

Incorrect. Even if we assume that the plan will involve multiple co-ops instead of one, they will be created as part of a coordinated effort. Already, co-ops do coordinate in sophisticated ways: The University of Wisconsin recently completed an extensive, NCBA and USDA-funded study of how co-ops are impacting the national economy. And the International Cooperative and Mutual Insurance Federation has “Intelligence” and “Development” committees, which guide its work on a global scale. None of this means that a hypothetical group of co-ops will effectively coordinate; however, the need for coordination has been well identified, and reality debunks Eskow’s blanket claim that co-ops can’t rise to the task. 

4. Co-ops can’t fight monopolies.

Here, Eskow claims that big business will squash the newcomers. That may be true, but there’s no way to be sure; co-ops in Minnesota and Washington have survived for decades. It is true that a majority of  health co-ops started after the Depression have gone out of business or changed their structure, but we should also consider how many idealistic government programs have disappeared or faltered in that time.

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

Finally, Eskow connects with his target. He raises a significant issue of cooperatives converting to other forms – known as demutualization. This is a real threat, which has led to the demise of many co-ops in nearly every industry. Unfortunately for Eskow, his argument is based on nonprofits that have acted more like for-profit corporations without changing their structure, which is an entirely separate issue. His concern is apparently that co-ops/nonprofits might not live up to their original ideals, and fail to result in substantive change. Even though Eskow missed his opportunity to make this point, we should indeed be wary of any cooperative’s long-term ability to stay true to its initial purpose.

Eskow also makes a couple of tangential points that are worth addressing because they are common misconceptions about co-ops.

“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.” 

True cooperatives are never built by government, so Conrad has to use the passive voice. Launching the co-op would require a very large and well-organized group of citizen leaders, and that will be a significant challenge. However, the cooperative movement is already very large (40% of Americans are members of at least one co-op) and would be well-positioned to lead this effort. I read Conrad’s words here as an appropriate willingness to allow the cooperative sector to make assessments about what structure(s) would work best, and organize to create them.

“The continued benevolence of any cooperative will depend on the direction and guidance it receives from politicians like Sen. Conrad.”

Eskow scores an own goal. This is actually a flaw of the public plan, which would be under government control and vulnerable to privatization during a potential backlash about the past year’s dramatic leap in public business ownership across the economy. In reality, a co-op’s continued benevolence would depend on the education and vigilance of its members, who would vote on any decision to demutualize, or who might remain passive as management gained inappropriate control and compensation. Demutualization generally happens when members’ short term financial gain exceeds their long term benefit. For example, a competitor might offer $1000 per share when members’ annual benefit is only averaging $100. Government might fail to intervene, but it is extremely unlikely that it would actively move to dissolve a business whose creation it encouraged.

Ultimately, the public plan and co-op plan both have strengths and weaknesses, and we should debate those in order to better understand whatever Congress eventually delivers to us (and maybe even guide Congress). However, re-hashing blanket statements about how either proposal “can’t work” without providing solid evidence is counterproductive.

I hope that future discussion can take a more realistic approach, and acknowledge the shades of grey in this huge and difficult policy discussion.