Let me start by saying that I am a firm supporter of a robust public option. For that matter, I'm a supporter of single-payer, as the BEST public option. As much as I hate to admit it, I recognize that a public option is a big hurdle at the moment.
So are co-ops a workable alternative? I've seen a lot of diaries and comments here dissing co-ops. I have personal experience with them, and I'd like to explain how a particular form of co-op HAS successfully brought down health care costs for my clients and their employees.
They work, and they could work even better with some minor changes to the law. Follow me over the fold to understand how they could be modified to provide a better alternative than Kent Conrad's concept of co-ops.
Twice, I've helped clients form a little known entity called a VEBA. (Voluntary Employee Beneficiary Association) I've also helped to form one MEWA. (Multiple Employer Welfare Arrangement) Both organizations are types of co-ops, in which health care benefits are provided to employees directly by their employer, in cooperation with a group of other employers. Their purpose is to spread the risk, and thereby lower costs. They operate much like any private insurance company . . . only there is no profit motive. The plans are formed specifically to provide better health care benefits to employees at lower cost. No part of the premiums paid by the employers ever wind up as profits for the co-op. Those funds are held in trust for the benefit of the covered employees and their families.
VEBAs and MEWAs differ very little. The main difference is that VEBAs are tax exempt organizations under section 501(c)(9) of the tax code. That means that they don't have to pay income tax on their income, and they don't have to file a tax return, though they do have some other paperwork obligations.
MEWAs, on the other hand, are not exempt from income tax. They must file tax returns, though they rarely pay much, if any tax. Their funds tend to be invested in cash-equivalent investments: the money must be available to pay employees' health care costs. As a result, they earn very little income.
IN both cases, these co-ops pool the employer contributions from a large number of employers, and use those contributions to pay for the health care costs of the covered employees. They are a lot like an insurance company. They employ people to examine claims and pay them, or inform the employees that their claims are not covered by the plan. Like any other insurance policy, they have limits, co-pays, excluded services, etc. But a decision to cover or not cover a claim is never made on the basis of profit for the company. The "company," in this case, is not a profit-making enterprise. Your employer doesn't get a refund on her contributions if there is money left over at the end of the year. The VEBA's entire existence is designed to meet the covered employees' health care needs, not to pinch pennies. The employers write the "policy" so that it provides the benefits they want for their employees, collectively.
But what happens if someone covered by the plan gets cancer? Does the plan just have to go bankrupt? The answer is no. VEBAs and MEWAs nearly always purchase stop-loss coverage. That is to say, they go out and buy an insurance policy whose only purpose is to pay for the health care costs of those employees whose costs mount and exceed a pre-determined amount in a year. So for instance, the VEBA might purchase a stop-loss policy that will cover any health care costs for a single employee which exceed two hundred thousand dollars in a calendar year. The VEBA will pay the first $200,000 and the stop-loss insurance policy will pay the additional amounts for that employee.
VEBAs and MEWAs, then, are a form of insurance company, without a profit motive: not so unlike a public option. And we don't need any legislation to make them happen. They have been in existence since 1928, though they only came into frequent use recently, as health care costs have sky-rocketed.
So what could be done to make them better? Make them larger.
The size to which VEBAs can grow is currently limited by the tax code, indirectly. The law requires that they be made up of group of employees who share an "employment-related common bond." That means that they are effectively limited to cover only a single market sector. The largest groups that are accepted as complying with this limitation are usually industry groups. For instance, a group of construction contractors might form a VEBA, intended to cover employees (and their family members)of members of a trade association made up of construction contractors. A group of accountants might form an association, and then form VEBA that would cover their employees and families.
That is all well and good. But couldn't we expand the pool, and spread the risk further, if we could combine the contractors and the accountants, covering all their employees under a single VEBA, with a single group of administrators? The answer is yes, but not so easily.
To do that, you would have to form a MEWA. (remember, the co-op whose earnings are not tax-exempt?) A MEWA can have members who do not share an employment related common bond. You can combine the contractors and accountants into a single MEWA. IN fact, in a MEWA, you can also bring in the employees of the downtown business association, or the chamber of commerce. In fact, one of the MEWAs we formed recently is available to the employees of any business that is a member of the local chambers of commerce . . . for two counties. Suddenly, businesses from the rest of the state are joining the chambers of commerce in those remote counties just to get access to the health care plan. Win-win, the Chamber Directors tell us, as they count up their now much larger annual membership dues!
So why can't we form a VEBA or a MEWA that is so large its membership would cover the entire country. Why, for instance, can't we form a VEBA that covers the employees and families of every lawyer who is a member of the American Bar Association? And then combine it with the National Bar Association to spread the risk even further?
This is where we will need significant change to the law. While MEWAs, as the law is currently written, could theoretically cross state lines, they cannot do so practically. The problem is that each state controls the regulation of the insurance industry within that state's boundaries. The insurance regulations vary a great deal from state to state. It would become an administrative nightmare for the administrators of a VEBA or MEWA to try to devise a health care plan and employ administrators to keep up with the differences between states. In some states, a VEBA might be regulated as an insurance provider, while in others, they are not considered insurance companies. Some states mandate coverage for certain procedures, while other states might actually prohibit coverage for the same procedure (think abortion, or other controversial therapies.)
A single, nationwide set of insurance regulations would make it much more practicable for MEWAs and VEBAs to cross state lines. Believe it or not, Republican Senator Mike Enzi (Of Gang of Six fame) has actually proposed to adopt a nationwide insurance regulation. In his mind, of course, it would reduce costs for insurance companies, who face the same dilemma as the MEWAs and VEBAs when they cross state lines. Administrative costs skyrocket when you are faced with an entirely different set of insurance regulations on each side of an arbitrary and invisible state line.
So, could we turn VEBAs and MEWAs into a viable public option, without calling it that? I think the answer is yes. IN fact, I think we could form VEBAs and MEWAs now, under current law, that would effectively drive the insurance companies as we know them out of business. We could form so many VEBAs and MEWAs that the insurance companies could no longer attract large enough pools of insured individuals to stay in business. That's incremental change I can believe in! On the upside, the new VEBAs and MEWAs would form a source of new employment for the many former insurance company employees who would be left looking for work. Their skill set would still be needed, and they can look forward to much more satisfying jobs, as their new focus would be on covering health care claims honestly, rather than denying claims arbitrarily to save a buck.
Let's keep pushing for a robust public option. But keep these organizations in the back of your mind as a fallback position.