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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10 replies »

  1. “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 who scream every time Medicare trys to pay less for services. Medicare is as it is because it operates in a private system that is also, “rife with corruption, fraud and way too expensive for the individuals forced to use it”. Why is it that other countries can do government controlled/single-pay and we cannot – because we are all enjoying the benefits (short term) of a system going into bankruptcy, just like Wall Street enjoyed it’s dishonest and incompetent bubble.

  2. 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.

  3. “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 not flowing into its revenue stream?

  4. 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 one size fits all, treat all symptoms with drugs that Pharma pays the doctor to prescribe, treatment plan. Heed the words of Thomas Jefferson “If people let government decide what foods they eat and what medicines they take, their bodies will soon be in as sorry a state as are the souls of those who live under tyranny.”
    And those of Hippocrates “Let your food be your medicine and your medicine be your food”.
    Public Plan, Medicare Model NOT the answer! The Medicare Prescription drug act-case in point- ensures that the govt and patients pay full retail for drugs, no price negotiations, no generics and as soon as the legislation passed, prices increased 100-1000%) Want reform? Repeal the Medicare Prescription Drug Act and save 600 BILLION! Allow low cost generic drugs to be manufactured by supplement companies under GMP. Prevent Pharma from paying doctors and insurers to prescribe drugs. Divorce health insurance from employment. Eliminate government subsidies of insurance companies. Allow beneficiaries to opt out of Medicare Part A. Make incentives to ensure true competition among insurance companies. (Repeal laws that set prices) Encourage preventive care. Allow insurance companies to sell across state lines. Encourage functional and integrative medical practioners. Allow HSA’s with much higher contribution levels without requiring insurance policies and allow the contributions to build year to year like IRA’s. Allow the HSA’s to be spent for vitamins, supplements, yoga, exercise programs, accupuncture, etc. Reward people for staying healthy and not using “the system”. Give rebates much like earned income credit for those who manage to stay healthy. Catastrophy insurance, cheap, for trauma, hospitalization and major illness would be useful and not currently available and/or affordable.
    Public Plan, Medicare is NOT the answer!

  5. “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 lost me at “likely”.
    IMHO, the barriers to either a public plan or a co-op vary very little.
    “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.”
    Please tell us more about these efficiencies and innovative payment experiments. For example would Dr Harris concur with your statements in todays excellent post about the death of primary care on this page? I think not. Ratcheting down payments and cost shifting to private payers has outlived its usefulness and would only accelerate the shortage of primary care physicians further.

  6. 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 negotiation. If you want the public plan to ram pricing down providers throats say so, politicians to date have promised this would not be legal but they said the same thing about Medicare.
    “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.”
    It is being done now what would change? Unlike the public plans of Medicaid and Medicare private insurers in the large group, which a co-op would be, aren’t shifting cost to other plans. If you are eligible for a large group plan your covered. Those same large group plans are decades ahead of Medicare in cost containment.
    “There is ample evidence from our experience with health insurance markets that developing effective coop-sponsored plans will not come easily or quickly.”
    What in the world are you talking about? 2 years ago I worked with other to create a new taft Hartley plan. In less then 7 months it was up and running. I can get a MEWA in Ohio off the ground in less time then that. The only thing stopping co-ops the past 15 years is Democrats. Democrats stop blocking them they would be up and running in less then 12 months.
    Lynn,
    We don’t need a penny from the government to start co-ops, the government wants to give money so they can control them though. It is illegal in almost every state to do a MEWA or MET that is why you don’t see more. As far as success almost every union plan is a taft Hartley plan which is a co-op. There are 1000s if not more of very successful co-ops. That is why Democrats have blocked them, the Unions were scared of losing their advantage. Reinsurance no issue at all. A well designed plan has no more risk of adverse selection then current plans.
    Donald,
    Don’t allow premium for insurance below a $x deductible to be taken pre-tax, only true insurance should be tax deductible.
    Eliminate needless mandates like massage therapy and chiro
    Require providers to charge patients the same price, you can start with any provider receiving tax dollars, can’t charge one tax payor more then you charge another, this eliminates PPO Fee extortion and reduces the barriers to entry. Also allows for consumerism.
    Eliminate state regulations against self funding

  7. 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 be changed to make catastrophic health insurance affordable for the 8 million truly uninsured American citizens and more affordable for the more than 200 million who buy individual and group policies?
    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?

  8. 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, higher risk patients currently shunned by health plans. Don’t co-ops become the dumping ground or health insurance ghetto? (What saved electric co-ops was the suburbanization of rural America — more paying customers.)
    If co-ops where a viable alternative, certainly they’d be in more communities across the nation by now.
    And of course in this fantasy land, we all lived healthfully ever after…..

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