This item by J.P. Green was originally published on August 18, 2009.
Sorting out the pros and cons of the co-op option vs. the public option is the challenge of the hour for progressives who want real health care reform, and it will certainly be hotly debated. Most just-published articles and blogs equate ‘public option’ with a government plan. But it seems important to ask, is there any way that a co-op can be a public option? There is no shortage of opinions on the topic:
The New York Times has “Alternate Plan as Health Option Muddies Debate,” a probing article by by Robert Pear and Gardiner Harris. The authors spotlight some key problems with the co-op approach:

As the debate rages, lawmakers are learning that creating cooperatives — loosely defined as private, nonprofit, consumer-owned providers of health care, much like the co-ops that offer telephone, electric and other utility service in rural areas — will not be easy.
The history of health insurance in the United States is full of largely unsuccessful efforts to introduce new models of insurance that would lower costs. And the health insurance markets of many states suggest that any new entrant would face many difficulties in getting established.

More specifically:

The government would offer start-up money, perhaps $6 billion, in loans and grants to help doctors, hospitals, businesses and other groups form nonprofit cooperative networks to provide health care and coverage.
The co-ops could be formed at the national, state or local level. Proponents say that a health co-op might need 25,000 members to be financially viable, and at least 500,000 members to negotiate effectively with health care providers…they would need time to buy sophisticated information technology and to negotiate contracts with doctors, hospitals and other health care providers.
…In the 1990s, Iowa adopted a law to encourage the development of health care co-ops. One was created, and it died within two years. Although the law is still on the books, the state does not have a co-op now, said Susan E. Voss, the Iowa insurance commissioner.

Not a very promising prospect, according to ‘the newspaper of record.’ Worse, $6 billion is about what we spend occupying Iraq in one month. Iraq and Afghanistan are the ignored elephants in rooms where health care reform is being debated. Few would doubt that half of what we spend on these two wars annually could go a long way toward bringing real health security to America.
Columnist Bob Herbert is even more dismissive in his NYT op-ed, “Forget about the nonprofit cooperatives. That’s like sending peewee footballers up against the Super Bowl champs.”
In his Alternet post “It’s Now or Never for a Public Option: Why We Need to Take a Stand Against the Insurance Industry’s Greed” Joshua Holland explains,

In 2000, the Government Accountability Office conducted a study of the impact similar purchasing schemes had had to date. “Despite efforts to negotiate lower premiums,” the GAO concluded, “cooperatives have only been able to offer premiums that are comparable to those in the general small-group market. The cooperatives we reviewed typically did not obtain overall premium reductions because: 1) their market share provided insufficient leverage; 2) they could not produce administrative savings for insurers.”
The Commonwealth Fund did an analysis of the impacts nonprofit co-ops would have as well (PDF), and its findings were similar. Researchers found that, “with very few exceptions,” premiums offered through co-ops “have not been lower than those available to small employers elsewhere” because they “have not been able to reduce administrative costs … they have not had enough market share to bargain for discounts.”
Because of their inherent limitations, former Vermont Gov. Howard Dean told me in an interview last month that the co-op scheme is a “fake public option,” and “really not [a] serious health reform.” He predicted that if they were created, they would “be crushed just like Blue Cross was crushed. Most Blue Cross chapters are now for-profit. They’ve been taken over by the insurance industry. Any reasonable-sized insurance company can crush a not-for-profit co-op.”

And, in The Nation, Katha Pollit writes of co-ops,

…They’re untested, small, unregulated, that they exist in twenty states and that Senator Kent Conrad of North Dakota really likes them–but I didn’t discover what they actually are. I understand “public option,” and “public” has a good, strong ring to it–it says, Healthcare is a right, part of the common good, something everyone should have, and if you can’t afford it in the marketplace, the government will provide it. “Insurance co-op” speaks a whole other language, of commerce and complexity and exclusivity

Writing in the Washington Post, David S. Hilzenrath and Alec MacGillis explain:

“It’s very difficult to start up a new insurance company and break into markets where insurers are very established,” said Paul B. Ginsburg, president of the Center for Studying Health System Change. “I don’t see how they’re going to obtain a large enough market share . . . to make a difference.”
Karen Davis, president of the Commonwealth Fund, a foundation focused on health care and social policy research, said co-ops may not enroll enough people to negotiate favorable rates with health-care providers.
…Co-ops would lack perhaps the main advantage of the public option: reimbursement rates for doctors and hospitals set by federal law, like those paid by Medicare, the program for older Americans. Federally determined reimbursement rates were central to the cost-saving promise of a government-run health plan and a potentially powerful competitive advantage. They were also a lightning rod for intense opposition from health-care providers and private insurers, who denounced the public option as a threat to their financial survival…Co-ops would lack the ability to piggyback onto existing government institutions, like the ones that help administer Medicare.

On the other hand, Co-ops have some advantages and “could serve a useful purpose in health care — just as credit unions compete effectively with banks, prompting them to offer higher interest rates on deposits and lower rates on loans,” explain Pear and Harris, summarizing the views of Ann Hoyt, a University of Wisconsin economist who has written extensively about co-ops.

…Professor Hoyt said she had been a member of the Group Health Cooperative of South Central Wisconsin since 1985, and she reported that “the care is excellent.”…Larry J. Zanoni, executive director of the Wisconsin plan, said: “We are a testament to the success of a health care cooperative. But it took us over 30 years to get where we are today.”

Representative Earl Pomeroy, Democrat of North Dakota, said the proposal for cooperatives was “a very worthy idea.”…“The market here is uncompetitive,” said Mr. Pomeroy, a former state insurance commissioner. “A cooperative could provide an alternative source of insurance and some interesting competition for premium dollars. A co-op could operate at lower costs, in part because it would not need to pay its executives so generously as the local Blue Cross Blue Shield plan.”

There are plenty of co-ops already operating, note Harris and Pear:

…In a study published in March and financed in part by the federal government, Professor Hoyt and other researchers at the University of Wisconsin identified nearly 30,000 cooperatives with revenues of more than $650 billion a year. They include farm co-ops, retail food co-ops, rural telephone and electric co-ops and credit unions — entities as diverse as Ace Hardware, The Associated Press, Blue Diamond Growers (almonds), Carpet One, Land O’Lakes (dairy products), Ocean Spray (cranberries) and Sun-Maid Growers (raisins).

If co-ops are going to do any good, they must be adequately capitalized, particularly since pre-existing conditions, a cornerstone of Obama’s and Progressive concepts of health care reform, will have to be covered. Also, there are more well-established ethics and accountability rules and regulations in government. And it is a fair question to ask if co-op employees would have enough of a commitment to public service, as well as the competence and resources to protect the health security of Americans. Also, how do you level the playing field, so giants like Blue Cross-Blue Shield don’t have such a potent edge over new start-ups?
Can co-ops actually be a sort of public option, performing a very similar role as does government? As Republican Sen. Orrin Hatch, quoted in The Times article, says “You can call it a co-op, which is another way of saying a government plan.” And, noting that Democratic Majority Leader Harry Reid called co-ops “some type of public option,” Chris Good adds at The Atlantic ‘Politics’ blog:

The RNC forwarded a press release/research memo to reporters today claiming that a “‘public option’ by any other name is still government health care.”…The idea is that co-ops (whether it’s one national co-op, state co-ops, or a national co-op with state affiliates) would serve the same function as government-administered health insurance, in that they’d operate as non-profits and perhaps utilize some added bargaining power or lower payment rates, thus forcing for-profit insurance companies to drive their own costs down, out of sheer economic necessity, once they had to compete with a non-profit that had some consumer cost advantages.

According to Rep. Anthony Weiner, as many as 100 members of the House of Representatives may see a bill with no ‘public option’ as a deal-breaker. In the Senate, however, Nate Silver guestimates only 41 solid votes for a ‘public option,’ compared to Chris Bowers’ 43. It’s hard to define the congressional consensus on the ‘public option’ between the House and Senate.
Is it ‘either/or’, or ‘both/and’? Might some kind of hybrid, that taps some of the advantages of both co-ops and government be possible? Much depends on whether co-op advocates can provide credible answers to these and other questions.