Can health-care co-ops live up to expectations?

COLFAX, WIS. - Two years ago, sick of rising health care premiums, Nancy Taylor tried to switch insurance carriers.

The dairy farmer from western Wisconsin found another insurer, but its policy had two big loopholes. It wouldn't cover conditions affecting her breasts or uterus -- a mammogram had once found a spot on her breast -- and it wouldn't cover ear, nose and throat conditions for her son, who wears a hearing aid. Says Taylor: "I looked at [the agent] and thought: This isn't insurance.''

Instead, Taylor turned to a new organization -- the Farmers' Health Cooperative of Wisconsin. The policy was no cheaper, but it covered everything her family needed.

Co-ops like the one Taylor found could prove pivotal as Congress moves into the next stage of debating health care legislation. The leading Senate proposal, a Finance Committee bill expected to reach the floor this week, would rely on health care co-ops, rather than the public insurance option favored by some Democrats, to create competition for private insurance companies.

Proponents say co-ops will offer lower premiums and help expand coverage without resorting to a government insurance plan. Skeptics doubt they can ever amass the size to compete with big insurance companies and negotiate favorable prices for medical care.

Rich history

Co-ops are an old idea in agriculture. Many farmers join co-ops such as Land O'Lakes and Cenex Harvest States to get group discounts for seed and fertilizer and jointly market their milk and grain.

In the 1940s a few medical groups around the country began organizing the same way. These co-ops owned clinics and hospitals; members pre-paid each month and got medical services when needed. Members served on the board and helped set benefits. If the co-op collected more in premiums than it paid in medical costs, premiums went down the next year.

Although these early groups were cooperative in spirit, they weren't legally co-ops, so they registered as nonprofits to comply with state laws. Today, just a handful remain, including Group Health of Puget Sound in Seattle and Group Health Cooperative of South Central Wisconsin.

Advertisement In Minnesota, what started as one clinic on Como Avenue in St. Paul, called Group Health Plan, grew over 50 years into HealthPartners, Minnesota's third-biggest health insurer, with more than 1 million members. It's not technically a co-op, but it operates as a nonprofit and has members on its board.

In 2003, worried about the high number of farmers who were uninsured or under-insured, the Wisconsin Legislature unanimously passed the Co-op Care law, allowing individuals and small employers to form pools to buy insurance.

The new co-ops don't own clinics or hospitals. They exist solely to create a critical mass of members to gain market leverage and buy group coverage through insurance companies.

The Farmer's Health Cooperative, which contracts with Aetna, is the biggest, with 2,600 members. Anyone who gets at least 66 percent of their income from farming can join. Eight percent of members previously had no insurance at all.

Another group, Cooperative Health Choices of Western Wisconsin, isn't even up, yet more than 300 entities -- manufacturers, legal offices, a hospital, even a couple of golf courses -- have applied to join. The co-op expects to get up and running Nov. 1.

It won't be soon enough for Dale Jorgenson, who runs a laser marking and engraving job shop in River Falls, Wis. With seven employees enrolled in his company's group policy, all it takes is one pregnancy to "throw the whole group off" and cause premiums to spike, he said.

He's eager to join the new co-op. "Instead of six, seven or eight people in the pool, there will be 600, 700 or 800 people," he said. "In the long-run, I can only think it's going to help stabilize the market."

Not cheap

Co-ops may smooth out premiums from year to year, but it's unclear if they can ultimately save money.

In a survey of members, Farmers Health Cooperative found that 51 percent of respondents said their premium had gone down compared with their previous carrier, but in some cases they had taken on a higher deductible. Another 30 percent said their premium was the same, while 18 percent said it increased. farm-related injuries -- benefits that many plans in the individual market lack. Premiums rose 7.9 percent in the co-op's first year and 9.8 percent the second year, on par with the group market in Wisconsin.

Among the first members were Jerry and Marlys Lausted, who raise Angus cattle in the rolling hills near Menomonie. They used to get coverage through Marlys' employer, a nursing home. When she retired from nursing in 2007, they found themselves stuck. Three different insurers refused to cover Jerry because he has arthritis.

The Lausteds read about the co-op in a trade newsletter, considered a policy similar to the one Marlys had in her job, and wound up picking one with a lower premium -- $795 a month -- but a higher deductible -- $10,000 between the two of them.

Scale problems

Can health co-ops take off nationally? Even their most ardent champions aren't sure.

"I don't think there's enough data either way," said Bill Oemichen, chief executive of the Cooperative Network, an organization of Minnesota and Wisconsin co-ops with a total of 6.3 million members.

Oemichen questions if the co-ops can grow big enough quickly enough to compete with existing insurers. "The difficulty is they take a lot of work to be created," he said. "Will they get to the scale necessary to create competition?"

In a preliminary analysis, the nonpartisan Congressional Budget Office said the co-ops "seem unlikely to establish a significant market presence in many areas of the country." Princeton University economist Uwe Reinhardt, a health care authority, is more blunt. Writing recently in the New York Times Economix blog, he called them "mice that roar."

Ironically, the legislation that would create co-ops around the country may also take away their biggest competitive advantage.

Private insurers, anxious to present themselves as a solution in the current congressional debate, have said they will stop denying coverage to people with pre-existing conditions -- a reform known as guaranteed issue -- on condition that Congress requires every American to buy insurance, an individual mandate. Both are in the various Congressional bills.

If that happens, a major advantage of co-ops -- taking all comers -- will no longer be an advantage. They will have to compete on benefits and price. And it's not clear if they'll win.

Taylor, the dairy farmer, says she can't risk going uninsured, what with three young boys in the house and the constant risk of farm injuries.

Taylor and her husband earn between $45,000 and $50,000 a year from milking 60 cows. More than one-fifth goes to paying health premiums. It's "good insurance," she said of the farmer's co-op policy, but it's still expensive.

Come renewal time, she plans to shop around.

Chen May Yee • 612-673-7434