Neither Quick Nor Easy

Thomas Greaney

The idea of establishing regional cooperatives, advanced as an alternative to President Obama’s public plan option, has attracted attention as a means of assuring that health reform legislation contains some means to improve competition among health plans around the nation. But the proposal, which may have superficial appeal as a “middle ground” between a public plan option and an unchecked private market, is ill-equipped to fix the key problems a public plan would address. In addition, recent experience teaches that timely and effective entry by such plans is unlikely.

The first issue is whether a cooperative, organized by consumers or other groups, can effectively deal with the shortcomings of the existing delivery system and insurance market. Thus far, the proposal advanced by Senator Conrad is pretty sketchy, but are grounds for skepticism. A central reason for having government sponsored plans is to allow the efficiencies of Medicare’s well-established administrative structure and innovative payment experiments to carry over to the private sector. Coops provide no such advantage. A second advantage of public plans is that they would likely achieve some bargaining leverage by virtue of their probable role as insurer for people representing higher risks whom private insurers find some methods to avoid. Hospitals and physicians will be hard pressed to bypass such a significant presence in the market and the public plan can thereby exert market-wide pressure to keep provider and pharmaceutical costs down. Whether co-ops will be willing to undertake the role of covering such individuals or able to sponsor innovative delivery systems to treat them is far from certain.

In any event, it is hard to envision numerous regional coops gathering the necessary data, experience and reputation to serve as a benchmark or counterweight to dominant hospitals and provider groups across the country. Further, there is a serious question regarding the independence and mission of coops. It is a mistake to assume that nonprofit entities will necessarily work to the advantage of the public. Unfortunately, our experience with nonprofit hospitals and HMOs suggest that they can easily be persuaded to play along with other providers and may not always vigorously pursue their charitable mission. Keeping cooperatives’ eye on the ball would require close attention to the control and governance of such entities.

The second objection is based on timing and practical considerations. There is ample evidence from our experience with health insurance markets that developing effective coop-sponsored plans will not come easily or quickly. It is clear that new entrants into health insurance markets face a host of obstacles. The prevalence and magnitude of entry barriers is evidenced by the dominance and profitability of existing insurance plans. One or a handful of companies dominate most health insurance markets around the country and these firms have enjoyed consistent and robust profits. Economic theory would suggest that such profit opportunities should have invited entry by rivals eager to capture some of the profits available in those markets.

Additional proof of the obstacles to entry are found in the investigations by insurance commissioners into proposed mergers in their states. In Pennsylvania for example, the proposed merger of Highmark and Independence Blue Cross would have combined the dominant insurers in two large distinct geographic regions of the state. Evidence provided to the State indicated that numerous attempts by regional and national firms such as Aetna and Coventry to enter both markets had proved unsuccessful over the years. Expert studies suggested that a variety of factors including brand loyalty, difficulties in securing physician and hospital network contracts, regulatory and information gathering costs, and obstacles created by the contracting practices of incumbent providers, thwarted entry. Newly formed coops needing to acquire expertise and develop networks will surely face enormous difficulties penetrating markets.

Professor Greaney’s is a nationally recognized expert on health care law and the Chester A. Myers Professor of Law and the Director, Center for Health Law Studies, St. Louis University School of Law.  Thomas Greaney has spent the last two decades examining the evolution of the health care industry. He is also a frequent contributor at Health Reform Watch where this post first appeared.  His recent testimony to the Senate on “Competition in the Health Care Marketplace” may be found here.

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battery panasonic dmc fz30PeterHealth News EdJohn Ballardhandsoffmyheath Recent comment authors
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battery panasonic dmc fz30
Guest

Asking questions are genuinely nice thing if you are not
understanding something completely, except this piece of
writing provides nice understanding even.

Peter
Guest
Peter

“Medicare is NOT efficient and is a very poor example for a public plan, rife with corruption, fraud and is bankrupt and way too expensive for the individuals forced to use it.” Handsoffmyheath, just ask seniors if they would like to shop the open maket for private health insurance. Yes Medicare needs to tackle fraud/waste/abuse, but that would mean more staff for investigation/follow-up/tracking. If Medicare is (going) bankrupt and too expensive then talk to taxpayers who would have to pay more to FICA Medicare deduction, then talk to seniors who also say, “hands off my health”, then talk to providers… Read more »

Nate
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Nate

I like making insurance companies scream like little girls. It makes me feel alive:)

Health News Ed
Guest

I would completly agree that setting up regional cooperatives would be a lenghtly and somewhat complicated process, however these detriments are surely much better than rolling over and accepting Obama’s public plan which to me seems to be laden with serious issues.

John Ballard
Guest

“Why harp on the Fannie Meds instead of dealing with the problems in the current laws that could be fixed without costing taxpayers a dime?” One step in that direction would trigger a scream from the insurance sector loud enough to be be heard in China. Reasonable as they are, the insurance reforms included in H.R.3200 are tepid compared to what you suggest. The whole point of the current so-called debate is that millions of new customers are about to become eligible for insurance, tax-paid vouchers in hand. What rational private insurer wants a single dollar of that tax money… Read more »

handsoffmyheath
Guest
handsoffmyheath

Medicare is NOT efficient and is a very poor example for a public plan, rife with corruption, fraud and is bankrupt and way too expensive for the individuals forced to use it. Yes, FORCED!. Regulations prevent recipients of SS from opting out of Medicare Part A without losing SS benefits. I don’t want insurance-I cannot afford it and wouldn’t use it, will not use it, even if I could afford it. Equating health care with insurance is a bad idea, always has been. I don’t want an insurance company practicing medicine on me, which they do, dictating to doctors a… Read more »

TheGroupGuy
Guest

“A second advantage of public plans is that they would likely achieve some bargaining leverage by virtue of their probable role as insurer for people representing higher risks whom private insurers find some methods to avoid. Hospitals and physicians will be hard pressed to bypass such a significant presence in the market and the public plan can thereby exert market-wide pressure to keep provider and pharmaceutical costs down. ” So the public plan would roll on the hand grenade and cover the sickest of the sick and this will somehow create leverage for discounts from providers and pharma? How? You… Read more »

Nate
Guest
Nate

Medicare has no efficiencies worth copying. The only reason their cost to process a claim is as low as it is, is they lack any safe guards which leads to 10% fraud and abuse loses. We can’t afford to lose 10% of expenditures for those currently in private plans. Which innovative payment structure are you proposing we copy? Seems everyone is complaining about RBRVS and DRGs and saying we need to move to a capitated system like that developed in the private market. Big costly and innovative doesn’t mean better. Bargaining leverage or dictate? Medicare shift cost by mandate not… Read more »

Donald E. L. Johnson
Guest

Good points on why health co-ops wouldn’t work and why there never be more than one co-op—a national plan run by Washington. The reasons wise Americans oppose a public option have been widely discussed. It would face all of the startup costs and challenges that co-ops would face, and it would be undermined at every step of the way by insurers and opponents of a Canadianized health insurance and U.K. health care system. Health care is imploding in Canada and a disgrace in the U.K., as daily headlines show. The question for Greaney is, how could state health insurance regulations… Read more »

Lynn  Bailey
Guest
Lynn Bailey

Don’t forget the federal funding it will take to just to organize and start-up the co-ops. This may require the revision of a number of state laws and adaptation of the insurance regulatory agencies. How long before the coops are “captured” as subsidiaries of the existing insurance providers? Or have to be rescued by a federal bailout because of adverse selection? What re-insurance options are available to protect the co-ops from unanticipated losses from these high risk members? I don’t understand how a co-op will be competitive with premiums when their pool of members is likely to be older, sicker,… Read more »