By Evan Falchuk

Health care cooperatives: It’s suddenly the hot topic in reform.  But what do Congressional and Administration leaders mean when they use that word?

We don’t really know – there is no legislation describing it.   But based on news reports, it sounds like a kind of mutual insurance company.

So, what is a mutual insurance company?

In general, a mutual insurer is a non-profit company in which each insured is also a part-owner.  So you buy not just an insurance policy but also an ownership interest in the insurer.  With a co-op, you probably wouldn’t have to actually buy an ownership interest – it would just come with your policy (in a traditional mutual insurer, you would have to pay an extra fee for this). From the strands of discussion about the government providing start-up money for these co-ops, it seems like that will the the source of capital.

The policyholders have major influence on how the business is run, even though there is a professional management team.  Normally, if a mutual insurer makes a profit, all of the money is either kept as part of its reserves, or given back to the owners as a dividend.  By linking ownership with insurance, you create incentives for lower costs and lower premiums and create a mechanism for making sure that the plan provides good benefits.

It’s hardly revolutionary – this type of insurance has its origins in the ancient world.  And the rural cooperatives from which the idea of the health care cooperative springs came into being largely around the time of the New Deal.

But old ideas can be good.  There are existing health care cooperatives that are doing good and interesting things.  For example, Seattle’s Group Health Cooperative (founded in 1947) runs an entire health system around its membership, and is highly thought of for its innovative approaches to providing coordinated, high quality medical care.  Still, while I don’t doubt that Group Health’s financial structure helps it do the very good things it does, I suspect their success has as much to do with the culture of their organization as it does with the way in which care is financed.

Stepping back to the bigger picture, then, it seems like the idea is to create new mutual insurers that could compete with existing players in the market.  It might add some new competition to under-served markets for individual and small group coverage.

I’m sure we will be hearing much more on this new avenue for reform in the coming weeks.