By MARC-DAVID MONK, MD

For a few years I’ve been fantasizing about what a healthcare insurance/ delivery mutual would look like.  I’ve yet to see one but I like the idea a lot.

Here’s the idea behind a mutual:  A mutual structure means that the company is owned by its clients or policyholders.  Since a mutual’s customers are also its owners, they get to share in any surpluses though they are mostly reinvested in the business.

Wikipedia has a nice writeup on the fundamentals of mutuals:

A mutual exists with the purpose of raising funds from its membership or customers (collectively called its members), which can then be used to provide common services to all members of the organization or society. A mutual is therefore owned by, and run for the benefit of, its members – it has no external shareholders to pay in the form of dividends, and as such does not usually seek to maximize and make large profits or capital gains. Mutuals exist for the members to benefit from the services they provide and often do not pay income tax.

Mutual structures are most common in the banking (credit unions) and insurance industries.   The main advantage to mutuals, as compared to public or privately held businesses is that they avoid the “principal-agent” problem (where the company’s desire to serve itself and the customer are at odds).

In a mutual, customer and owner are one.

Mutuals have been around for a few hundred years:  “friendly societies” have been active in the UK and the US for a couple hundred years.  Friendly Societies… were the original form of social network, where a group of people contributed to a mutual fund, to then receive benefits at a time of need.

In some cases, especially in America, members typically paid a regular membership fee and went to lodge meetings to take part in ceremonies. If members became sick, they would receive an allowance to help them meet their financial obligations. The society might have a doctor whom the member could consult for free. Members of the lodge would visit to provide emotional and other support (and possibly to verify that the sick member was not malingering). When members died, their funeral would be paid for and the members of their lodge might attend in ceremonial dress—often, there was some money left over from the funeral for the widow. Friendly societies might also organize social functions such as dances, and some had sports teams for members. They occasionally became involved in political issues that were of interest to their members.

Today, mutuals have lost ground over the last twenty years in the US and Europe mainly because (unsurprisingly) access to capital in a publicly traded company is far better than at a mutual.  I’d make the argument that American’s increasing social isolation over the past few decades (as described in Robert Putnam’s great book Bowling Alone) has also contributed.  The time seems right for the reemergence of mutuals, along with community markets and the sharing economy: I’ve written about the pendulum swing between individualism and collectivism in America, and am willing to bet dollars to doughnuts that twenty years of collectivism are on the horizon.

In an era where patients and the healthcare-industrial complex have a real agency problem, I love how a mutual structure aligns with the interests of members.  It reduces a lot of the conflict between insurers/ patients and providers.  And, it creates a situation where members make decisions about how they want their money to be spent (and what they’ll forgo.  There’s less to protest when you and your fellow members have made advance decisions about what the mutual will pay for…).

(NB- A mutual isn’t, say, Kaiser, which is a form of prepaid group practice. Members don’t own Kaiser… although it is largely non-profit).

To be successful, a healthcare mutual would need to tie together insurance and care delivery under one umbrella.  A board of directors, comprised mostly of members, would guide the company’s strategy.  Members would help make the tough decisions about how the organization spent money, and what it will cover.

Here’s what I love about the idea of a “friendly” healthcare mutual:

1. There is direct re-investment of healthcare profits into the business.   Paying investors costs money.
2. By tying together insurance and care delivery, overhead is reduced.  Mutuals could make the decision to skip billing/ coding and administrative bloat to a great degree.  As I’ve written before, when providers can charge 60-80% less than insurance rates for cash customers, because they avoid administrative costs, you know bloat is serious problem.
3. You get around the “spumoni problem”.  That’s when patients who’ve made the decision to lower costs by buying a narrow-network vanilla insurance product demand spumoni when they get sick.
4. You end up with a healthcare delivery organization that is well-designed to exclusively focus on the aggregated needs of members.

To do this well (and to avoid the problems of health insurance co-ops) you’d need to ensure a few things:

1. First, a mutual can’t (and shouldn’t) appeal to everyone.  You’d be targeting a specific demographic of engaged members who understand the advantages and trade-offs of friendly healthcare.
2. You need to ensure that members will stick around.  Patient churn makes it hard for organizations to commit to preventive care and raises costs.
3. You have to figure out what to do with seniors.  Medicare payment rules (coding/ billing/ rules) continue to be a barrier to innovation– although there has been a lot of heartening news from Medicare recently.
4. You have to understand your actuarial exposure and price your offerings well enough to be competitive.  You can’t attract disproportionately bad risk.
5. You have to figure out how to raise capital and early operating capital. Easier said than done when there are no external investors.

Given these limitations, I’d hazard that the first healthcare mutuals in America might be started by a defined groups of people (retiree association, union, employee group…) that would mutualize an existing insurance and provider group and allowing members to join/ own as a perk of association membership.

In any case, what’s old seems new again, in healthcare and other fields as well.  Ideas come round:  A piece in TechCrunch last year noted

When you watch the technology industry long enough, you begin to see some of the same ideas recycled. Maybe they didn’t catch on the first time because they were too early, or maybe someone out there today believes they’re smarter or can throw more money at the problem and succeed where others couldn’t.

Technology tends to run in cycles, and as it evolves some early failed attempts might be worth another look in the context of more modern infrastructure.

Might this be the case in healthcare as well?