Critical Condition

Co-op Confusion

Reihan Salam asks: “Why are Republicans rushing to oppose co-ops?” I hadn’t noticed that they were. We usually associate co-operatives with agricultural communities. Indeed, farmers’ co-operatives are really the only successful (that is, dominant) form of co-operative. Consumers’ co-operatives, which continue to exist, hardly dominate retail markets in the face of for-profit competitors.

Given the relative success of farmers’ co-ops, a reasonable person is led to conclude that the “co-ops” floated by the president’s faction are simply a way of clothing a wolf (the “public option”) in sheep’s clothing. The goal would be to bait Senator Grassley of Iowa, and other farm-state legislators. Indeed, the health-care co-op in Green Bay, Wisc., that the president has visited and praised was seeded with federal money (via earmarks won by two Wisconsin Democrats), so their support of his “reform” is neither objective nor disinterested.

Not that there’s anything theoretically wrong with the co-operative in Green Bay, which required state legislation to enable the corporate structure. But why did it need a federal hand-out from day one? If group co-ops are the “natural” form of pooling risk or leveraging purchasing power, why did they not explode after Group Health Cooperative of Puget Sound (which is generally praised as a high-performing system) was formed in 1947?

Mr. Salam asserts that we don’t have enough non-profit insurers. In fact, we have many, but they’re not co-operatives. In California, Kaiser Permanente still dominates. Most economists would tend to disagree with Mr. Salam’s assertion, noting that the rise in health costs over the last 20 or so years meant that health insurers needed access to capital markets to keep solvent, although executives’ personal financial motivations were certainly also a factor.

But so what? Recent research on conversions of non-profit health plans to for-profit status concludes that the for-profit plans did a better job of holding down costs.

— John R. Graham is director of Health Care Studies at the Pacific Research Institute.