‘Health Reform: The Fateful Moment’

To the Editors:

Theodore R. Marmor and Jonathan Oberlander do a good job of summarizing the state of health reform [“Health Reform: The Fateful Moment,” NYR, August 13], but they still miss some important players and options. They mention Senator Kent Conrad’s proposal for a network of health care co-ops, but they don’t investigate that angle any further. While co-ops might be scarce and untested, nonprofit health plans exist and they are successful, tested for decades in the marketplace (over ten million members), and superior to for-profit health plans in both quality of care and cost efficiency.

According to J.D. Power and the National Committee for Quality Assurance, nonprofit health plans are superior when measuring prevention and treatment performance, member satisfaction, and accreditation. In addition, for-profit health insurance companies spend 15 to 25 percent of revenues in overhead costs while nonprofits spend only 5 to 10 percent in overhead, which is similar to Medicare.^*

So, we can reform health care without sabotaging private enterprise while taking the greed out of it.

Ionel Vasilescu
Oakville, Ontario

Theodore R. Marmor and Jonathan Oberlander reply:

Ionel Vasilescu’s letter does not take issue with our overall portrait of the contemporary politics of health reform, but with an omission. There is, however, an important ambiguity in Vasilescu’s argument. The subject of co-ops is raised, but the evidence of superior performance that is cited refers to nonprofit insurance plans.

Co-ops are a particular kind of nonprofit plan that is organized and governed by consumers. There are many historical and contemporary examples of electrical utility cooperatives, for example, which were often established to provide services in areas of the country lacking electricity. That model is no doubt what Senator Conrad has in mind in proposing the creation of a nationwide network of health care co-ops.

There are, however, so few health care co-ops currently in existence that they cannot sensibly be regarded as a model for the country. Indeed, they are the rarest of birds in health care, exemplified only by the Group Health Cooperative of Puget Sound in Seattle and a few others. The Puget Sound co-op was started by trade unionists in 1947, and is run by a board that consists of and is elected by its members, who pay a fee to join; its doctors are paid by salaries rather than through fee-for-service and can earn bonuses for high-quality performance.

To believe that we can create from scratch a network of cooperatives across the country that could effectively compete with the for-profit insurers that dominate many local health care markets is a fantasy of public policy: legislate it, the presumption is, and these co-ops will simply come into existence. There is good reason to believe that it would be difficult to translate the co-op idea into practice nationwide in a way that provides an effective counterweight to for-profit health plans. In view of the controversy over enacting a public option, the co-op idea is important primarily as a dubious political compromise.

Vasilescu is correct that nonprofit health insurers play an important role in the health system, but the crucial distinction is that nonprofit organizations such as Kaiser Permanente are not typically co-ops. Nonprofit plans do better than for-profit plans, on average, both in the quality of care they provide and in their administrative costs. The operative emphasis here is on “average.” It is worth noting that in the 1960s, two thirds of Americans with health insurance were in nonprofit Blue Cross Blue Shield plans. Today, in contrast, many of the largest Blue Cross Blue Shield plans—such as those in California, New York, and Ohio—have become for-profit organizations.

The remaining nonprofits have to compete with the for-profits and, over time, that has prompted convergence more than divergence among these two different approaches to organizing large health insurance providers. Even if health reform increases the opportunities for nonprofits —and it is not clear that the legislation before Congress will substantially expand the place of nonprofit insurance in the health care system—there is no prospect that such insurance will bring about great reform.

What will help nonprofit health insurers is reform that constrains and penalizes behavior by for-profit insurers like cancellation of coverage after it is accepted, cherry-picking of healthier clientele, and imposing limits on what expenses are insured through obfuscation, hassle, and the like. President Obama has pledged to change such practices in his health insurance reform. Yet most of our citizens do not know the jargon in which many of those reform ideas have been expressed, such as “guaranteed issue”—i.e., no denial of insurance because of a preexisting health condition such as diabetes or cancer—and “community rating,” in which all members of an insured group pay the same premium.

In his speech to Congress on September 9, Obama firmly and clearly stated the need for tighter regulation of health insurance. However, in his reference to a “not-for-profit public option,” he left ambiguous the critical question of what kind of public insurance the proposed reform will offer. The concerns expressed here are good examples of what the debate over health reform should be taking seriously, but has not.