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Old-fashioned co-ops get new focus

A centuries-old way of doing business is taking center stage on Capitol Hill as a cutting-edge and potentially politically viable alternative to the government-run health insurance plan long preferred by President Obama.

Cooperatives, first organized in the 18th century, are being considered in the health care reform debate after the Obama administration signaled Sunday that it isn't wedded to the taxpayer-funded public plan, once considered by Democrats as essential to any substantial health care package.

The suggestion that Mr. Obama was ready to drop the taxpayer-funded public health insurance plan sparked a sharp reaction from many Democrats on Monday, even as the interest in the co-op alternative model was soaring.

Some liberal Democrats warned that they would not support a bill without the taxpayer-funded public plan.

"A public option is the best option to lower costs, improve the quality of health care, ensure choice and expand coverage," said House Speaker Nancy Pelosi, California Democrat.

Rep. Raul M. Grijalva, co-chairman of the Congressional Progressive Caucus, said he would not support a bill without the public option. Former Vermont Gov. Howard Dean, a physician who is also a leading progressive voice in the reform debate, said reform without a public plan is not worth it.

Under the cooperative business model, individuals organize into a nonprofit collective to gain greater bargaining power in the market.

In the case of health care co-op, people from a specific state or region would band together and act essentially as their own insurance company. The co-op would determine what kind of coverage members want their plan to include and would negotiate rates with health care providers. The nonprofit co-ops would compete alongside private plans and would not be a collection of insurance companies.

Most of the cooperatives familiar to Americans - such as Land O'Lakes Inc., Welch's, Sunkist and Ocean Spray Cranberries Inc. - are owned and run by farmers. The model closer to what the health insurance program would look like is a credit union, said Paul Hazen, president and chief executive officer of the National Cooperative Business Association, the leading co-op trade group.

"The purpose of the co-op is to provide economic benefit to the people using it - not to maximize profits," he said. "It's particularly successful in providing services or generating income when the market fails."

The cooperative model has gained increasing traction in recent weeks as the political difficulties of passing a bill in the Senate have become more apparent.

Sen. Kent Conrad, a North Dakota Democrat involved in negotiations on a bipartisan Senate bill, has crafted the co-op plan as an alternative to a government-run insurance plan.

Obama administration officials said they were open to the co-op proposal on the Sunday talk shows as opposed to the government-run plan, which is opposed almost unanimously by Republicans.

But even in the Senate, some Democrats on the Finance Committee have voiced skepticism over the co-op proposal and the idea of dropping the public insurance option.

In the face of liberal unhappiness, White House press secretary Robert Gibbs on Monday played down the suggestion that Mr. Obama was weakening his stand.

"The goals are choice and competition. His preference is a public option. If there are other ideas, he's happy to look at them," Mr. Gibbs told reporters aboard Air Force One as the president returned from an appearance in Arizona. "Nothing's changed."

Supporters and opponents are divided on whether the co-ops would provide enough competition to insurance companies, which have a near-monopoly in some markets.

Operators of existing programs, mainly concentrated in the West and Upper Midwest, say the key to a successful co-op is attracting enough members to give it significant market clout, members who are personally invested in the success of the program and can provide strong funding.

Mr. Hazen said Mr. Conrad's proposal does not yet have enough specifics for him to judge whether it would be successful, but said the key would be how the health co-ops are organized.

"Co-ops work best when developed from the ground up and not the top down," said Mr. Hazen, warning that a successful co-op should be judged over a 10- or 20-year time frame, not as a quick fix to the country's health care woes.

The proposal, not yet released in legislative language, envisions the new health co-ops receiving startup funding in the form of federal grants or loans. Mr. Conrad has pegged that at about $6 billion. The co-ops would have to operate under the same regulations the insurance companies do and likely would be set up at a state or regional level.

Co-ops were first used by farming communities in the late 1700s. It was in 1910 that the concept was first introduced to the health care system, when a group of New York hospitals banded together to purchase joint laundry services, according to the University of Wisconsin's Center for Cooperatives.

Today, there are at least 305 health care cooperatives in the country, accounting for about $5 billion in revenue, according to the center, which warned that the figure is only a preliminary estimate.

Proponents of co-ops say that because they are nonprofit entities, members traditionally pay less they would with a traditional for-profit insurer.

"The large majority of members report paying the same or significantly less than the insurance before," said William Oemichen, president and CEO of the Cooperative Network, a cooperative trade association in Minnesota and Wisconsin - the two states with the most cooperatives in the country.

"This can be replicated on a national basis," he said.

Since 2003, when Wisconsin passed a law authorizing the creation of health care cooperatives, the association has created 15 such programs, some focusing on farmers, physicians or other groups.

The co-ops were formed with no state seed money, except for a federal grant for the farmers' group, Mr. Oemichen said.

In the early 20th century, co-ops were formed with federal startup money to bring electricity to the vast Western states, where private power companies would not invest. Many of those co-ops still exist.

The public option versus co-op argument is likely to be a significant sticking point and may end only when the House and Senate try to combine their bills. There is more support for the public plan in the House, whose rules give Mrs. Pelosi and other Democratic leaders more power. In the Senate, the Democrats' majority is slimmer, making the co-op, which is likely to have at least some Republican support, more appealing.

Republicans, who have shunned the idea of a public option, said Monday that they're interested in the co-op proposal because it limits the government's role, but are waiting to hear details before they decide whether to support it.

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