Co-ops: not what the doctor ordered

Co-ops have been in the news lately in a couple of different contexts. The first is the dairy industry. An article in our July 23 issue cited a study maintaining that much of the current crisis for dairy farmers can be traced to the importation of massive amounts of milk protein powder—by the very same co-ops that supposedly represent American farmers. More recently, National Public Radio’s “All Things Considered” reported that in 2006, investigators from the U.S. Justice Department recommended charges be filed against major co-op Dairy Farmers of America (DFA) and Dean Foods, among others, for violating the Sherman Antitrust Act. The case was shelved under the Bush administration, but now senators, led by Bernie Sanders of Vermont, have requested that the investigation be revived.

The other context in which co-ops have been mentioned is as a “compromise” that will somehow avoid the (in our opinion) imagined ills of a public option while still seeing to it that people’s healthcare needs are met at an affordable price.

The case of the dairy industry tells us that co-ops, though they sound much more cozy and democratic than either private corporations or government agencies, are not necessarily a solution to anything. In fact, there are clearly circumstances in which co-ops themselves can become the problem.

It’s worth taking a closer look at the case of dairy co-ops to see what went wrong. In the case of DFA, which has a virtual monopoly on the milk market in the Northeast, the size itself seems to be a problem. The organization is nominally owned and run by its members. But in fact, by a series of mergers and acquisitions it has become so large, and management so divorced from the membership, that farmers have no discernible impact on its policies. We doubt very much, for instance, that local farmers contributed to DFA’s decision to obtain 12 dairy import licenses and import foreign milk powder to compete with American milk. And if farmers disapprove, there is nothing they can do about it, since it is frequently the only game in town when it comes to selling milk.

It has also been charged that DFA has become too cozy with the milk processors that it sells to, in particular Dean Foods. Dean Foods got such good prices out of a deal it made with DFA that its profits soared 31 percent in the second quarter of 2009—a period during which prices paid to farmers for raw milk dropped 40 to 50 percent.

Would a system of smaller, more competitive co-ops make a difference? Presumably that’s an option at least worth considering. However, even if it is a good idea, it’s not going to happen unless the government steps in with strict regulations and trust-busting measures.

But size is also a two-edged sword. In the case of co-ops for health care, an organization small enough to still be responsive to member needs would be far too small to negotiate prices effectively, the way large-scale public programs, like the Veterans Administration, can. There is no way small start-up organizations, which the co-ops would be, could compete effectively with the handful of huge private health insurers that currently rule the health insurance market. And, according to a 2006 American Medical Association study, health insurers exercise a “near-monopoly” in this nation, with many markets dominated by one or two companies. This makes it almost impossible for small players to get a foot in the door.

Milk pricing is a complex issue and we are glad to see that Senator Kirsten Gillibrand, Agriculture Secretary Tom Vilsack and others have initiated inquiries into how to make the system work better for dairy farmers. We hope that in doing so, they investigate fully the issue of dairy co-ops, why they have stopped serving the American dairy farmer and what can be done to make them better—or if necessary, eliminate them. We also hope legislators have the backbone to take whatever steps are necessary to do so.

But with regard to the possibility of health insurance co-ops, the lesson of the imperiled dairy industry is clear. Not only are co-ops not a cure-all, they can be just as dangerous and indifferent to those they purportedly serve as the private health insurance companies that currently endanger our lives by denying our claims and dropping us from coverage when we get sick. If we are to be forced to buy medical insurance, then there must be a viable alternative to for-profit health insurers, and one that is powerful enough to compete effectively and lower market premiums. Co-ops do not make the grade.

Also in this issue:

• A moratorium makes sense

Dr. Punnybone

All Porpoise Cleaner