Notes on Co-Ops

Some very rough notes on co-ops I jotted down just before a radio interview yesterday. The main questions I was interested in addressing were the feasibility of co-ops, whether they would lower costs, and whether co-ops would broaden coverage so that it is practically universal. This was a last minute effort, and likely incomplete, so please don't hesitate to add to the list in comments:

1. Co-ops are not very well defined.

2. It is not clear that Co-ops will lower costs. For one, you need at least 500,000 members to have enough bargaining power to matter, and even then it just puts you on an even keel with existing companies. That isn't enough bargaining power to lower costs. Also, will co-ops lower administrative costs? Probably not much.

3. Some reports say the plan would come with 6 billion in start-up funds. But there are still large barriers to entry.

4. This was an eye opener. Blue Cross-Blue Shield, which already has substantial market share in some areas (e.g. 90%), is a non-profit and would likely qualify as a co-op. Though they would likely come under some new regulations in terms of who they must cover if they did change to a co-op, as well as other restrictions, it doesn't seem like this would bring about much change.

5. Some states already allow co-ops, e.g. Iowa, and they have not generally been successful.

6. On coverage, how will that work? Will these co-ops be like Savings and Loans (to which they are often compared) where membership is restricted to certain groups, or will they be forced to provide insurance to anyone who wants it? If so, how do you stop firms from subtly using non-price mechanisms to discourage high cost patients from joining? Exactly how coverage will be regulated is vague in the reports I read, though perhaps there's an actual proposal somewhere that is more informative.

7. Republicans won't support this either, so why are we bothering with it?

[Update: Tyler Cowen asks What are health care co-ops?]