Health Insurance Cooperatives: Title and subTitle BreakLessons From the Great Depression

Nearly a century after universal health insurance first arose as a social and political issue, the United States is mired once more in a volatile and high stakes debate about the direction of health care reform. While a Medicare-like public option remains very much in play, health care cooperatives have drawn increasing attention from lawmakers, the media, and the public. Most physicians are less familiar with cooperatives, their guiding principles, or their unique advantages or disadvantages. However, the concept of health care cooperatives is not new in US history. Reviewing what historical needs led to them, how they were constructed, and how reliance on them waned may sharpen the ability to assess the potential value of cooperatives in health care delivery and financing in today's health care debate.

The ownership and governance (eg, voting for board members) in a cooperative are enjoyed equally by all members. These voluntary associations are designed to advance mutual social, cultural, or economic goals. They have taken many forms, including what many consider to be the first cooperative created by Benjamin Franklin to provide fire insurance in colonial Philadelphia. Group Health Cooperative of Puget Sound, which began in the mid-20th century heyday of the cooperative movement, may best exemplify an integrated, full continuum-of-care system and serve as a template for regional contemporary cooperatives. The cooperative model encourages families, individuals, and small businesses to come together in voluntary, nonprofit associations for the purpose of purchasing health care coverage. As envisioned by proponents, cooperatives would offer a choice of private insurance plans or could negotiate premiums and benefits directly with providers of services, such as physicians or hospitals. While government subsidies might be needed for start-up costs or to supplement premiums for low-income members, the fact that these cooperatives need not be government-controlled has piqued the interest of conservative Democrats and Republicans.

Between 1932 to 1947, the US Department of Agriculture's Farm Security Administration (FSA) attempted to assist small rural farmers who were particularly distressed by the economic devastation of the Great Depression.¹ Using low-interest loans, the agency promoted marketing, farming, and equipment-buying farm cooperatives as a means of assisting small farmers to compete against larger and better-capitalized farmers. Sounding familiar to one of today's major health care tragedies, the FSA found that half of all loan defaults were due to ill health and as the agency's chief medical officer recognized, “a family in good health was a better credit risk than a family in poor health.”¹

Recognizing the dangers of doing nothing, the FSA decided that getting involved in the payment and provision of medical services was justified on economic, if not moral, grounds. Working directly with local physicians and county (and less commonly state) medical societies, the FSA negotiated fee schedules, covered benefits, and established a financing mechanism whereby physicians billed an insurance pool funded from patient's annual low-interest rehabilitation loans, hence, the name “cooperative.” Participating physicians provided basic, primarily outpatient care to FSA patients and then billed the medical cooperative for their services. Usually a trustee was chosen—such as a local judge—to review submitted charges and oversee the administration of the fund. In aggregate, 65% of submitted bills were paid to participating physicians.

This level of cooperation of the medical community with the FSA health plans was unusual for that time. The American Medical Association tolerated the FSA programs in deference to the economic struggles of rural physicians and, in part, because the programs targeted individuals who were previously able to pay little for medical care. At a time when the insurance concept was relatively new in medicine, these cooperatives afforded some 650 000 rural citizens in 39 states access to basic health care. In part due to the success of the cooperatives, 90% of all FSA loans were eventually paid in full.^{2 (pp5,7)}

By the 1940s, reliance on the FSA cooperatives waned. With increased industrial employment opportunities, fewer individuals stayed in farming and, with this flight, there was a diminution in the strength of local commitments to such organizations. Many physicians opted out of the program when better payment opportunities became available. A number of the young FSA administrators and physicians became national medical leaders, and, by the late 1940s, most of these earlier cooperative champions felt that best medical care future lay in supporting a national, rather than regionally based, health insurance model. Their hopes were dashed with the failure of President Truman's health care proposal in 1947.^{2 (pp152-167)}

The FSA cooperatives ultimately failed to achieve the size or demographic mix that would have made them more formidable and durable systems. This historical observation remains one of the defining critiques of health cooperatives today. Put simply, when purchasing high-quality and reasonably priced coverage, size matters. In the highly competitive private insurance market, cooperatives are often not large enough to offset advantages that large insurers and employers enjoy in negotiating benefits and premiums. Supporters counter by suggesting that regionalization would enable cooperatives to negotiate successfully with physicians, hospitals, or insurers on premiums and benefits and to pressure these same groups to create better integrated, more efficient, and higher-quality plans.

There are other barriers to cooperatives as a model for health care reform. While cooperatives can provide high-quality, integrated care responsive to local needs, less certain is their ability to drive premium savings, cost containment, transparency, and evidenced-based practice through their negotiations with clinicians and insurers—all advantages claimed by supporters of the Medicare-like public option plan.³ That these are difficult to achieve, however, does not mean that they are unobtainable. The most successful cooperatives have managed to combine the financing and delivery of services such that costs are better controlled without sacrificing quality. Group Health Cooperative of Puget Sound is a fair example of a cooperative's potential to hold down costs and provide comprehensive, quality care.⁴ Another problem is that many states have laws that prevent cooperatives from being given tax-exempt nonprofit status. Congress could remedy this through legislation, as is the case now with credit unions, thereby eliminating an important legal barrier to the creation and sustainability of health cooperatives. Consistent with the cooperative ethic, this legislation should include language specifying that any “profits” accruing to the cooperative be used for needed capital improvements, lower premiums, or expanded benefits.^{5 - 7}

The US health care system is hampered by fragmentation, escalating costs, less than optimum clinical outcomes, and failure to provide basic health care services to millions of citizens. Any vision for universal coverage without reforming how health care is organized and paid for is disingenuous and bound to fail. Unless both objectives are met, it is difficult to see a path to an affordable, efficient, and effective health care system. Furthermore, should consensus emerge regarding health care reform, it will in all likelihood conform to the US predilection for incrementalism on highly divisive social issues, and solutions are almost certain to incorporate public and private strategies to address financing, accountability, and structure. The health insurance cooperative model currently being debated conforms to this analysis, as does the historical example of the FSA medical cooperatives. The cooperative movement in the United States stretches back over a century and in various guises it is a familiar and comfortable concept to many in the United States. Although cooperatives offer unique opportunities for public-private partnership between patients, clinicians, insurers, and government, their ability to provide coverage to those left out of the current system requires congressional action to level the playing field in ways that would enable cooperatives to offer choice and sustainable membership.