In my Oberlin College days, I was a member of OSCA, serving on the board for a term and putting in a happy year of residence at one of the hippier residence halls. It was an interesting experience, and it convinced me of the ability of cooperatives to function competently in the economy. I wonder if some of that competence couldn’t be utilized in the health care field. I have sketched out some ideas on how such a co-op could function.
A co-op organization could be formed with a charter of providing health care for its membership. To start things off, initial membership would probably have to restrict itself to people without current major medical conditions or expenses. That could change later on as the co-op deploys more resources, but to begin with it has to be a mutual self-insurance group, not a charity.
The co-op’s financing would work on the basis of a tithe. Members would agree to contribute a fixed percentage of household income – probably starting at something like ten percent – as their membership contribution. There would be an income minimum – probably something like $10,000 a year. Households with more than one member would pay an additional percentage – perhaps two percent per person. Members who utilize an arbitrarily large quantity of resources might have their base rate increase. There would be a cap on the tithe of say twenty-five percent of income.
Payout would be very simple. Every household would have a credit balance, consisting of their contribution to the co-op to date. Members can spend their credit freely from co-op funds using a credit card issued by the co-op. Members have to spend it on medical expenses, but the honor system plus a minimal review system (“how is a resort stay in the Bahamas a medical expense, dear?”) should keep administrative costs low.
During the first year of operation, the co-op would collect tithes and disburse only funds from its existing balances. No balance, no payout, sorry.
At the end of the first year, the co-op’s cash balance would be examined and the co-op board would decide what portion to invest (conservatively, in government bonds or something of similar solidity) and what portion to be made available for charitable redistribution within the co-op. Invested funds would still have to be somewhat liquid, since members can make withdrawals from their balances, but it should be relatively easy for the banking types to figure out what percentage needs to be kept purely liquid and what can go into T-bills or what have you. The board would also review the contribution rates and make adjustments as necessary, in response to member feedback and the economic climate.
After the first year, when the co-op has a working balance sheet, a review board is formed. This is a rotating volunteer panel made up of co-op members elected to one-year terms. A modest fraction of the slots on the panel are reserved for doctors and nurses so that the board always has access to a medical point of view. The board knows the charity balance, as does the membership, as it’s posted on the web site and updated regularly.
If people need more care than their balance allows, they can apply to the review board. Applicants are expected to either already have spent their balance to zero or be willing to do so in pursuit of some much more expensive treatment. The board’s approach should generally be to allow a budget to the member, rather than to specifically approve or disapprove a procedure. Thus, the co-op can help with partially financing procedures where a member may have access to other partial funding sources, rather than making an all-or-nothing decision. The budget can be large or small, and can be designed to pay for one procedure or for a reasonable course of treatment, at the board’s discretion. Board meetings are public, but deliberations on cases are private. The budget would be added to the recipient’s card once it was granted, and they could go out and buy the care they need.
There would be a couple of different policies that the co-op could adjust as needs and conditions changed. One is the criteria for membership. Obviously, the co-op wants to have lots of healthy people who don’t need a lot of medical care, in order that the system flourish and have plenty of resources. But the point is to deliver health care, not just to accumulate capital in the charity fund. The governing board will have to set the rate at which already-sick people can join the co-op. A ratio like 1 in 10 is probably sustainable even in the early years of the co-ops development; 1 in 5 would not be unreasonable once the system is rich. The other number the co-op would have to fiddle with, of course, is the base tithe and the quantity of the adjustment for being an expensive member (expensive member meaning people paying a higher tithe than the base rate).
The reason to adjust upwards for expensive members who draw down their balance is to create a moral pressure against unneeded use. The expensive member isn’t really losing anything – the money goes into their account, after all, and they can always take it out to use on their medical bills. But it’s a psychological construct that reminds this member that they do have health care expenses and must plan ahead for them.
The board could also use its discretion to purchase group catastrophic insurance for certain conditions, if that turned out to be cost-effective for the membership.
The principle virtue of a co-op like the one I’ve described is that it almost completely eliminates moral hazard. Everyone understands that they are responsible for their own care, that they must contribute in order to receive – and yet membership is voluntary, so there is no coercion or threat. There is a powerful and obvious incentive for everyone to not spend down their balances – not only does the money accumulate to them (it could even pay interest), they know that every year of a budget surplus improves the investment pool, meaning that there will be more available in the future when the member might need a big helping hand. Members who were able to put in a year or two without incurring medical costs could relax somewhat, knowing that if Junior breaks his arm, there’s thousands of dollars in the account to cover it – but they wouldn’t feel incentivized to stop working and contributing to the system, because they also know that Junior’s cancer-God-forbid would go through that fund like nothing.
Rather than one giant national co-op, it would make more sense to have lots and lots of smaller groups – perhaps oriented around affinity groups so that members would have an automatic fraternal feeling. Lots of small co-ops spread risk, and also give people maximum freedom in finding a group with policies they approve of.
Even smaller co-ops (say 1,000 members), if localized, would have considerable buying power, and since the co-op credit card is just like cash, they would be extremely desirable customers. Doctors and hospitals would be eager to take co-op business – no paperwork, no hassles with the gatekeepers (the member already having gone through that), just smooth easy green for services rendered. The co-ops could probably negotiate very good discount rates, locally and nationally. Hearkening back to OSCA’s membership in various umbrella groups, a co-op of health care co-ops built on this model could probably negotiate with the big boys.
I would join such a co-op. Heck, I might just start it.
