I'm not following health care reform too closely, but I'm intrigued by recent talk of Democrats embracing a non-government cooperative, "perhaps in lieu of a government-run insurance plan" to introduce competition to private insurers.  The Senator Kent Conrad (D-N.D), the first to propose this model, describes it thusly :

"My proposal is based on the cooperative model that is already so successful across our country. The plan calls for creating private, consumer-owned, non-profit cooperatives that would provide affordable health care to families, individuals and small businesses. ...Similar to the electric, telephone and farm cooperatives across America, these health care cooperatives would operate as non-profits owned by the consumers and could deliver better health care outcomes for lower costs."

Proponents cite Group Health Cooperative of Puget Sound as an example of how co-ops can increase competition and lower costs.  But, as this excellent NYT article points out, "There is much about the Group Health model that Congress and the White House would like to replicate. Whether that requires a cooperative structure is open to debate."

What's a co-op?  Well, despite Sen. Conrad's description, cooperatives are actually for-profit corporations.  (The NYT article explains that the Group Health Cooperative founders actually misnamed it--it's not technically a cooperative at all!).  A co-op exists where a group of farmers or electricity consumers band together to own the corporation they patronize.  If there are any profits after services are provided, they're redistributed back to the co-op members/owners.  Non-profits, in contrast, don't have owners to distribute profits to (although they may make profits, sometimes large ones). 

Co-ops may conjure up crunchy granola images, but they're actually all around us.  Land O' Lakes.  Sunkist.  Ocean Spray.  True Value. REI.  I've been reading up on them as part of a broader project that considers the full spectrum of business associations. 

As described in Henry Hansmann's The Ownership of Enterprise, producer co-ops tend to arise when individual producers are up against a dominant middleman and facing price exploitation.  For example, when faced with a cartel of grain elevators in the 1890s, farmers responded by cooperatively owning grain elevators to ensure that they received a fair price for their grain.  Buyer-owned cooperatives also exist: AP is owned by its 1500 newspaper members.

Governance is a big selling point for co-ops.  Each member gets an equal vote--not like a corporation, where the majority holder is always going to dominate.  But this egalitarianism creates its own difficulties by imposing high "costs of ownership" --getting everyone to agree. 

Hanmann posits that it's homogeneity of ownership makes the cooperative form work.  Ocean Spray's cranberry growers all have the same incentives and it's relative easy to measure each grower's contributions because the crop is homogeneous.  This last point is important: you have to be able to measure inputs fairly to ensure that the profits are divided fairly and the co-op doesn't waste too much time squabbling over splitting the pie.  This is why you don't see lots of different kinds of fruit growers banding together to form one big co-op.  (Incidentally, Hansmann argues that cab-companies and law firms can be employee-owned because meters and the billable hour provide the same kind of neutral measure.)

So would a health-care co-op work?  Hansmann observes that retail consumer co-ops are uncommon because "the customers of any given retail firm are commonly too numerous, transitory, and dispersed to organize easily or effectively."  I mean, even if you think the price of cable television in your area is too high, are you really motivated to band together with your neighbors, form a cable company, and provide yourself with service?  Hmmm...some days, with Charter Communications, I think maybe the answer is yes.  But I digress. 

According to Hansmann, for a health care co-op to work, first you need for health care to be a large enough ticket item for people to care enough to invest in monitoring and governance of the organization.  Health care's share of the typical consumer's budget might have risen to the point that this could work.  As Sen. Conrad points out, rural electric and telephone co-ops successfully follow this model. 

The sticking point, it seems to me, is the homogeneity problem.  Electricity and telephone service are homogeneous.  Health care is not.  Say a co-operative is made up of a 25 year old woman who smokes, a 50 year old triathlete, and a 65 year old whose father had prostate cancer.  Presume that they're all motivated to keep health care costs down, monitor, and participate in the governance of their co-operative.  Will they be able to agree?  If Hansmann's right about the importance of homogeneity, I think the answer is no.

Still, maybe the cooperative form itself has value.  Quoting the Times article again:

"A number of company officials acknowledged that it is Group Health’s ability to directly manage its doctors that really drives innovation. The cooperative structure’s primary contribution, they said, is to create a consumerist ethos that keeps the company focused on patient care.“ 

Maybe the Group Health's governance structure serves an expressive function,  signaling to health-care provider and patient alike that controlling costs is key.  Or maybe, according to an economist also quoted in the article, "In the end, it's not about who owns the place."

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