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.

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5 Responses to Health co-ops revisited

  1. RJ Eskow says:

    Thanks for reading and commenting on my piece (although it sounds you took some of my comments a little personally!) Overall, I think you assumed a greater hostility to co-ops on my part than in the case. In fact, the opposite is true: I’m a big supporter of co-ops … even a fan. But the Conrad co-op proposal is being floated specifically to kill the public option, and it’s far inferior to a reasonable public plan. It’s the Conrad idea I oppose, not co-ops.

    Re your specific criticisms, some reactions:

    1. It’s true that MA was not a co-op plan, and I agree with you it might have been substantially better had there been one. My point was that state-specific solutions (which the Conrad plan is; more on that later) cannot ‘change the game’ in health care … since we have national (and a nationally dysfunctional) system.

    2. I agree that co-ops are “not necessarily” a localized, haphazard solution. I reviewed Conrad’s comments in detail, however, and it was clear that that’s what he was proposing. Talk of a possible national co-op or regional co-ops came later, but Conrad’s discussion of these topics should a lack of interest.

    3. Some coordination among state or regional co-ops is possible. But that’s asking people to take on faith the notion that there will be a concerted effort to duplicate what would come automatically with a public plan.

    4. I mentioned the existence of successful co-ops. But they are isolated examples in a nation dominated by for-profit health monopolies.

    5. I am well aware that many non-profits act like for-profits. I can’t make every point I’d like to make in a 900-word piece. But demutualization is a real and ongoing problem. I don’t trust legislators to ban it. They did that with many Blues plans, then simply reversed themselves when it was expendient to do so.

    I think your comments re the “passive voice” and Conrad make my point, not yours. Legislation which merely enables co-operative initiatives is fine, but is not a substitute for a well-run public option. We can’t assume people will fill the gap with the right kind of geographically broad and innovative plan.

    Regarding your “own goal” comment – I don’t think so. Medicare has existed for 45 years without privatization ever even being discussed.

    Once again, thanks for opportunity to consider your points and reply. My last thought: I’ve written about co-ops before. Co-ops are a good thing. I’m a fan. I’d like to see them thrive, whatever form reform takes. They are not a substitute for a public plan, however, in my opinion.

    Best, Richard Eskow

  2. RJ Eskow says:

    PS – typo: Conrad’s initial comments about his co-op plan never mentioned a nationally coordinated program (as least as far as I could discover). When he discussed it later I meant to write that he “showed a lack of interest,” except in the most passive way.

  3. coopgeek says:

    Thanks for taking the time to make a detailed rebuttal to my rebuttal. It does sound like I assumed more hostility to co-ops than actually exists. There has been a lot of hostility circulating on Huffpost, and I regret that I bunched you in with all the others who are reflexively attacking the co-op plan as an unacceptable sellout of the public plan (which I think is an unacceptable sellout of single payer, but that’s another story. I know there are a lot of people out there who love co-ops and are not crazy about this plan. Heck, the National Cooperative Business Association released a press release with a title “Cooperatives Can Address Health Care Needs if Properly Defined and Adequate Consumer Protections are Established.” This is not exactly love at first sight. However, my issue continues to be with people making universal “can’t” claims about how a co-op plan “will fail” without any factual basis, as you did.

    1. I definitely agree that the one co-op per state plan is a dog, and I’m glad that Conrad abandoned it. It would work fine in states like New York where there is a large population, many of whom are already co-op members. But Wyoming or even Nevada would be in trouble. Thanks for the clarification of your point.

    2. I don’t think that Conrad’s original proposal is particularly important. I think it was a useful starting point for discussion, but absolutely not workable as a national solution. Fortunately, there has been more input and it has evolved more in a direction that could work (either national or perhaps as many as a dozen regional zones). We need to be looking at the latest proposal from the Senate Finance Committee, and unfortunately they’ve been pretty secretive beyond that leaked original draft.

    3. It is indeed a leap of faith to assume that co-ops will coordinate, but I specifically didn’t argue that. However, co-ops do tend to coordinate within their sectors (except for the food industry), and it is not far-fetched to hope that the government could still do its own study (or fund it, like the UW study) to help the democratically-elected leadership of several cooperatives know what collaborations would be most beneficial to their members and the nation.

    4. Alas, health care cooperatives are rather rare. But if we have a well funded and well publicized nationwide development effort, they could reach a critical mass that could have a very different outcome than the past. We should consider that co-ops consistently outperform for-profit business during bad economic times, and are excellent solutions to market failures like what is happening in health care. For details, check out a very recent report from the International Labour Organization: http://www.ilo.org/wcmsp5/groups/public/—ed_emp/—emp_ent/documents/publication/wcms_108416.pdf

    5. I also don’t trust regulators to ban it, but the real issue is that members make the decision to demutualize. That’s why I commit to educate people about why co-ops are so valuable, in general as well as specifically to this proposal. If the co-op plan is implemented, this will turn out to be a lifetime of work.

    On the non-numbered items…

    The passive voice requirement is definitely a drawback to the co-op plan. We can’t assume that they will work out, and so we’ll need to work on that. Personally, I think that it is worth the extra risk and effort, because I don’t trust any government plan to work in the long run. Yes, Medicare has been around for decades, but those were good decades and the system is already going broke. The public plan would create something that is already framed as a player in a competitive market, more akin to Freddie Mac and Fannie Mae. It would be low-hanging fruit for pro-privatization advocates.

    And as far as discussion of privatization never being discussed, I got 94,000 hits on a web search for “privatize medicare” Here are the first three, one of which argues that it has already been partly privatized.
    http://www.ncpssm.org/news/archive/vp_medprivatization/
    http://www.sojo.net/index.cfm?action=magazine.article&issue=soj0402&article=040241a
    http://www.citizen.org/documents/Medicare%20report%20final.pdf

    Ultimately, we need to keep in mind that co-ops are historically a well-established way of dealing with market failures and governmental failures. And in an era of dangerously unsustainable government deficits and teetering businesses, I think we would be foolish to trust the long-term effectiveness and viability of a government-run enterprise.

    Thanks again for commenting. I appreciate your willingness to have a calm and respectful dialog even though I sort of lit into you on my first approach. I look forward to continued dialog.

  4. Zvi GALOR says:

    Hello,

    I would like to comment on one of your points about demutualization. You raise the idea of “For example, a competitor might offer $1000 per share when members’ annual benefit is only averaging $100.”

    I would like to add that one very important reason for demutualization of cooperative is when the cooperative ceases to respond the needs of the members of the cooperative, to which they have established it.

    The case study of Tnuva shows us very clearly that the groups of the dairy-farmers, a minority among the members, wanted to continue Tnuva as cooperative regardless the money offered to them.

    I propose to enlarge the horizons regarding demutualization of cooperatives.
    And remember the needs to cooperative to respond the needs of the members may save many cooperative as well as helping the health cooperative in your country to succeed.

    Regads

    Zvi

  5. coopgeek says:

    That’s a great point (which I left out mostly for brevity). It raises an interesting question of what might have happened if we had proper cooperatives instead of the quasi-cooperatives and nonprofits that are common. People seem unhappy enough with Blue Shield that I suspect it would have demutualized a long while ago if under governance by policyholders.

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