The Health Cooperative "Razzle Dazzle"

In the Broadway show "Chicago", the star defense attorney wins the case by giving the jury the "old razzle-dazzle." The American public is getting the same treatment with health-care cooperatives. These programs are being pitched as something magical when, in fact, they are risky not-for-profit insurance businesses.

Such companies are nothing new and exist in many regions. At Henry Ford, our Health Alliance Plan (HAP) was originally founded by the United Auto Workers. Even with its not-for-profit status, HAP must play by the same economic rules as every other insurance company -- match premiums with actuarial risk or become insolvent.

Running a health insurance plan is complicated. It requires expertise in health risk assessment, claims, contracting and quality management. The plan must have significant scale and reserves to cover claims and complete in the marketplace. Over the last decade many small insurance companies have folded or been sold off because they could not meet these challenges.

In the health reform debate, the public is being offered "cooperatives" instead of a federally managed public plan. This may seem like a retreat, when, in fact, it is smart politics. Very few health cooperatives have ever been successful and new entries will meet the same fate. The business is too difficult and without scale, cooperatives will have no leverage to change delivery models. Some may even require a federal bailout.

Once that drama plays out, the public plan will look more attractive. Like it or not, only the federal government is powerful enough to change the direction of health care delivery.

Meanwhile, we will have to endure the health cooperative "razzle-dazzle."

By Mark Kelley  |  August 17, 2009; 10:02 PM ET  | Category:  Cooperatives , Health Care Reform
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