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Self-Insurance Cooperatives - the Solution We Need
Patricia Hess - 2/20/2013
Will Obamacare be the health care crisis solution? A private company projects their costs (here and also here), but the government seems unable to do so. The government can't show people how to claim back PPI. Will Obamacare be able to afford to cover non-lethal diseases, like herpes? Meladerm and similar elective medication would obviously not be covered by a government insurance plan.
We don't need to be forced to pay for medical care; we just need to be able to do it at an affordable rate. My father refused medicare because he didn't want to pay the co-payments, even though they were reasonably low. If the government had tried to force him to pay it, he would have jumped into the grave early out of rebellion. Luckily, he lived to be 92 and was a few thousand dollars richer because of his stubbornness.
I can testify from my own experience that healthy people don't spend as much on medical care as they do on insurance premiums - that is, if the prices are not tripled for cash payers. If cash prices were reasonable, insurance companies would have less business (go figure that back room deal: healthcare providers and insurance dealers have the cards stacked against us). It's totally unethical to charge different medical fees for the same services just because it's paid by different methods (cash, insurance or Medicaid), and it should be illegal.
I think it's also unethical to make a profit off of any type of healthcare industry related to emergencies or necessary treatment, including insurance. And, whether insurance companies admit to significant profits or not, insurance has been pushing medical prices higher. I once saw my friend's kid climbing to the top of an open doorway by pressing his feet on either side and inching them higher and higher. Insurance does the same: they raise the rates that medical centers and personnel have to pay for required insurance, such as malpractice, accident and fire, etc. Then, when the costs are passed on to the consumer, they raise the consumer's health coverage rates. Up, up, and away it goes in a never ending cycle.
The same thing has happened with auto insurance. Regardless of what price or terms it starts at, as long as any kind of insurance is required by law, it will go up in price. The legal requirement gives the industry as a whole a matter-of-fact monopoly because people have no choice but to buy insurance from insurance companies. Then, since the insurance industry has gotten so comfortable under the government's wings, the government won't do anything that threatens the future of the insurance industry because it might destabilize the whole economy. In other words, the government might provide a maze with many options, but it will never give us a real way out of the predicament of high insurance costs.
We need to make another choice now. We need grassroots community action to form and support self-insurance cooperatives. It's not a new idea, but this is my version of it and why it can lower healthcare costs.
Self-insurance cooperatives (SIC's) would keep a fund in an amount necessary to cover major emergencies for a certain percent of the people in the cooperative; that percent could be based on statistics for the average number of people in the population that have a major emergency within a certain time frame - I estimate it would be less than five percent. The fund would not need to be big enough to cover all anticipated expenses because it would be continually replenished while money was being paid out.
Members would make initial payments to build up the fund. Then, no payments would be made until an amount of the fund was used. The fund would pay for any medical care of the members that was necessary or an emergency. As soon as payments for medical care were disbursed, members would be required to make additional payments to bring the fund back to its original amount. If there was a problem with the fund being depleted and not replenished quickly enough, then there could be an option for obtaining short term loans. All members would pay equally regardless of whose medical care it was. However, members would have the right to review and contest payments if fraud or misuse was suspected.
Here's an example: If there are 400 emergency room visits per year for every 1000 people, and ER visits average $1000.00*, then a cooperative of 1000 people might need to keep $400,000 in their fund. Of course, this fund could be replenished daily as it was used, so there would be money to cover other medical expenses. That would mean each member would initially contribute $400, then continue to pay an equal percentage of everyone's expenses (but only after the actual expense was incurred, not prior to it, unless the fund was depleted). Suppose each person also accrued $1000 per year in other medical expenses, making the total expenditure of a year $1,400,000. Then each person would pay $1,400 for that year. Let's say one percent of the people (10) had major surgeries costing around $100,000. That would up the bill to $2,400,000, or $2,400 per person per year. That's around $120 to $200 a month; reasonable compared to the cost of insurance policies.
(*An example of statistics are: http://www.statehealthfacts.kff.org/comparemaptable.jsp?ind=388&cat=8 and http://bulletin.aarp.org/yourhealth/healthyliving/articles/what_an_outragewaaay_too_many_er_visits.html)
There should be a minimum and maximum number of people in the cooperative; a minimum for maintaining the ability to replenish the fund and a maximum for hands-on management to prevent fraud or misappropriation. If a group had members that were mostly rich, then a small group would generate adequate funds. If a group's members were mostly poor, a larger number of people would need to be involved. For example, if a low income family of four lives on $12,000 a year (not counting non-cash assistance), then 250 similar families would count as 1000 people with a total income of $3,000,000. If they could contribute ten percent of their income toward medical expenses, they would be able to put $300,000 in their fund. Since the statistics mentioned above suggest expenses might deplete that amount, then a higher number of members should be allowed to join. For the poverty income bracket, perhaps 1000 families (4000 people) could keep up a fund of $1,200,000. At $100 per month for a year, families could build up the original fund, and then replenish it as needed.
Here are some ideas about organizing self-insurance cooperatives:
The cooperative would be non-profit and would not pay members for work or services; however, they could form a second fund for hiring an accountant or other staff. Otherwise, members who voluntarily helped manage the cooperative could be awarded incentives, such as payment waivers. Management could be decided by membership votes, and nearly everything could be organized online. All transactions done by cooperatives should be transparent for the members.
Cooperatives would be free to make membership rules for their own benefit - such as: no smokers, no heavy drinkers, etc., as well as screening for previously diagnosed problems, just as insurance companies do, and considering other factors, like the potential member's financial situation, job security, and family. However, as a matter of ethics, once a person is a member, cooperatives should not revoke membership based on high medical expenses or long term illnesses. An exception might be made if a member's profile does not match his lifestyle - such as claiming not to smoke but puffing away a pack a day.
If there were new members who wanted to join after the cooperative started operating, they would need to make an initial contribution that would be as much as that of the original members and also bring the fund up to the amount needed to cover the new total number of people in the group. If members chose to 'opt out' and relinquish their membership, or if they were unable or unwilling to make the required payments, then they would not be eligible to be insured by the fund and they would lose the rights to the original contributions they made to establish it. Temporary inability to pay due to financial hardship could be negotiable, and exceptions could be made if a person had good reason to cancel his or her membership. The right to sell or transfer a membership could be decided by the group. In the case of a members death, his membership could be taken up by an heir. However, the original contributions would not be disbursed to the members unless the whole cooperative disbanded, for the sake of keeping the cooperative stable.
In addition to laws allowing self-insurance cooperatives, a key factor that would make them functional would be a law requiring healthcare providers to treat the self-insured cooperatives the same way they would an insurance company, and not charge higher prices or require payments up front. Healthcare providers could verify funds were available by calling the bank that had the funds on deposit, or by using an online service. To help make it a trustworthy system, and in case of a natural disaster, the government could provide a backup fund, similar to the federal guarantee for bank deposits.
Now, for the important part: Self-insurance cooperatives could lower healthcare costs.
The payoff comes from the group members' awareness that unnecessary or expensive treatment is going to come right back at them in the form of a higher bill to replenish the fund. That would stimulate competition to stay fit, avoid the ER, and shop around for the best price. Currently, when traditional insurance companies pay the bill, people are only concerned about the amount of co-pay, not the total cost, so there is no motive to keep the prices down. Another point would be the competition to obtain membership in the best managed cooperatives - for example, if membership rules required healthy lifestyles, it would be an incentive for people to quit smoking or drinking.
There would be several factors to lowering prices. Referring to the example above, once the kid got to the top of the doorway, he had to get down the same way he got up. On one foot, people taking more responsibility for their health and expenditures would reduce the demand for healthcare and give preference to providers with lower prices. On the other foot, if self-insurance cooperatives became popular and numerous enough to have social and financial power, then they could influence policies and prices, and get people out from under the monopoly of traditional insurance. On the other side of the doorway, there should be caps on court judgments for malpractice and laws that allow medical centers and personnel to form their own self-insurance cooperatives to replace their malpractice insurance or other business related insurance.
That jumps us to the next step: Don't pay the hospital, just buy it.
To further control prices, self-insurance cooperatives could link together to form more powerful organizations with capital that could purchase medical facilities. For example, ten cooperatives could form a coalition and pool their resources or attract investors or obtain loans, while each one continued to self-manage its own membership.
Let's look at a potential structure using levels that start with small groups. The multi-level group system would spread the responsibilities for accountability throughout the cooperative, rather than relying on a few people in management positions to handle everything. It would also prevent those in management from abusing their power. And, the main benefit would be to instill motivation in each member to actively participate in making the cooperative successful.
A group of five people could form a first level member group. First level members would be responsible for monitoring each other to verify appropriate use of health services. For example, if Mr. Jones was healthy but his doctor was billing the cooperative for heart surgery, a first level member could report that Mr. Jones was conspiring with his doctor to commit fraud. If Mrs. Jones ran to the emergency room every time her child sneezed, a first level member could report that she was unnecessarily taking advantage of the coverage.
Ten first level groups would make up a second level group - of 50 people. this level would be responsible to investigate first level groups' claims and verify economic situations of members. On the third level, say, 500 people, the work of evaluating and monitoring memberships could be done, and third level groups could police second level groups concerning income reporting. At the top, the fourth level group would be the number of people needed to keep the fund solvent; that is, it would include all the members.
So, regardless of the number of people, the pattern would be for the membership to be divided into sub-groups that shared responsibilities, and the smaller groups would be within the larger ones; for example, if there were ten third level groups, then each of those groups would have ten second level groups (100 total), and each second level group would have ten first level groups (1000 total).
As mentioned above, a coalition could be formed from a group of cooperatives; we could call that the fifth level: it would be a group of self-insured cooperatives that remained independently managed but joined together to purchase medical facilities or staff. A sixth level would be a partnership of fifth level groups cooperating to control medical services in an area or region. For example, one fifth level group would buy a dentist office, the next, a doctor's office, and the third, a testing lab, etc., and a sixth level group could coordinate the management of those facilities. Seventh level groups could cooperate to control a hospital and all related services. Eighth level groups could take over a drug company. If enough people were involved, there would be no limit.
To prevent a conflict of interests, all higher levels of cooperatives would also be non-profits; that is to say, you can't profit with one hand and bargain with another when both hands are using the same wallet. The motive to keep prices down must be driven by the members who directly pay the costs. Also, keeping power in the members hands even after a huge coalitions form is essential to prevent the 'institutional cafeteria' effect - that is, an organization serves its own members 'bad food' because the majority of members have no option to eat elsewhere. There is a risk of coalition controlled medical facilities letting the quality of their care degrade if the factor of competition is removed. This could be prevented by giving strong rights to members and allowing them to obtain care from any health provider they choose.
While considering the option of self-insurance cooperatives, let's reflect upon the concept of insurance: you pay up front and they'll use some of that money to pay for your healthcare. Traditional insurance companies sell you a policy that's 'yours', but don't remind you that your money has a good chance of paying for someone else's care. The idea is, the insurance company takes money from lots of people, with the promise to pay for the healthcare of all of them; if one person's is very high, more of the money goes to him; if that doesn't leave enough money left, the rates go up; but, if expenditures are low, rates almost never go down. The people's money also has to cover the cost of maintaining, staffing, advertising, and managing the company - plus make a profit. With self-insurance cooperatives, the amount a person pays is directly related to the costs the whole membership incurs, so there is more incentive to keep any added expenses to a minimum.
The reason we buy insurance is so there will be money available for unexpected things that we would normally not have money for. (See meladerm reviews.) Self-insurance cooperatives could fill the same need - with much less expense and with a lot more control in the hands of the people who earned that money. A positive side effect could be a greater sense of community, a sense of responsibility or altruism toward others, and the comfort that compassionate people - not just amounts of money - will be there when the unexpected events happen. It would also mean that people would not have to risk rejection when they are suffering from non-lethal, but unpleasant medical concerns. Organizing from the bottom up with small groups that take part in management is a venue for social relationships to develop. So, insurance could become more than a stack of papers and a cold customer service representative. It would be about doing for others what you would have others do for you.