Who’s looking out for you?

Whether it’s a public plan, health insurance cooperatives, social-purpose insurance companies, or some combination of the three, there should be plans in the private market that seek to cover people, not maximize profit. Much of the controversy around national health reform centers on the public plan. But what is the debate really about?

Supporters hope that a public plan will put competitive pressure on the private companies and “keep them honest.” The health insurance co-ops might do the same thing, but would be owned by consumers, instead of the government. Either way, their primary goal is coverage, not profit. We started Freelancers Insurance Company for the same reason. We were tired of negotiating with private insurers, whose interest in the bottom line always seemed to trump our interest in covering our members.

When a better world is the business plan

Freelancers Insurance Company is rooted in the same ideas that gave rise to the public plan or co-op proposals, as well as in the growing field of social entrepreneurship. These are mission-driven organizations that establish for-profit businesses whose primary purpose is to fill a social need. Though Freelancers Insurance Company is a for-profit insurer and must balance its books each month, it is wholly owned and operated by Freelancers Union, a nonprofit membership organization. There are no shareholders getting rich off Freelancers Insurance Company.

Not reinventing the wheel

These aren’t new ideas. There’s plenty of evidence that groups of workers can come together and form businesses that compete effectively in the market, sustain themselves, and provide needed services to their members:

• Mutual insurance companies, in which the policy holders are the shareholders, gained significant market share in the U.S. until Ronald Reagan pushed them to de-mutualize in the 1980s (PDF).
• The health insurance cooperatives of the Emilia Romagna region in Italy are owned and financed by the worker-cooperatives that they have successfully served for the last 80 years.
• The mutuelles in France are private, supplementary insurance policies, owned and operated by labor organizations, which complement the public health system. All of these models work, and we should make room for them in national health reform.

Guided by the right principles

When the goal of a company is to cover people, it makes radically different decisions than one driven to make profits for its shareholders. We can speak first-hand about the differences. For one, traditional insurers often try to eliminate the sickest, most at-risk from their pool of enrollees. Our goal, on the other hand, is to keep people in the group, no matter their health status. So whereas a traditional insurer might cut a plan or benefit that attracts less healthy people, we try to find the right balance of benefits and pricing to keep people on the plan and work to subsidize their costs in other ways. For example, we may decide to take on more actuarial risk to keep prices down and keep people insured.

Social capital worked for housing

Because we are financed by social capital from foundations, as opposed to private equity, we don’t have the same profit pressures traditional insurers have. Freelancers Insurance Company is financed with capital from foundations, which require a 2% rate of return, instead of the 30% rate private equity investors would likely require. The federal government should explore new approaches to promoting these models, including offering low-cost capital, setting alternative capitalization requirements, or establishing favorable tax treatment to support health insurers that meet social goals. This approach has a long history in affordable housing and could be applicable to health insurance as well.

Un-perverse incentives

Finally, social-purpose insurers depend on developing a large, sustainable risk pool over time, so they have strong incentives to invest in preventive care to keep their members healthy (and hopefully less expensive) over the long term. For example, Freelancers Insurance Company is developing innovative new nurse practitioner and mental health networks.

Since national health reform will undoubtedly preserve the private market, Congress should support and promote entities, be they a public plan, a health insurance co-operative or a social-purpose insurer, whose primary goal is to get people the health coverage they need.