Every year, Santa Ana strawberry farmer Mack Ramsay pores over health insurance plans for his 35 employees, checking out prices, coverage, deductibles and other fine print from giants like Blue Cross, Blue Shield and Aetna.
For 21 years he has chosen instead a little-known, nonprofit healthcare cooperative based in Irvine that provides insurance to about 15,000 Californians and Arizonans mostly working in agriculture.
Now, as Congress examines ways to overhaul the nation's healthcare system, the co-op has found itself in the national spotlight as a model for a proposed co-op option consumers could consider along with private insurers.
The United Agricultural Benefit Trust works like a commercial insurer, negotiating rates with a network of doctors and hospitals, but it is owned by its members. Many of them, like Ramsay, say co-ops offer better service and are cheaper because they don't have to turn a profit. But critics say co-ops, which are not as tightly regulated as other insurance providers, are susceptible to insolvency and would not work on a large scale.
California Insurance Commissioner Steve Poizner said co-ops like the agricultural trust faced the same challenges as other insurance or shared-risk entities, with one added vulnerability: If a whole industry is hit hard financially, that could ruin a co-op. But "with the correct oversight, they can be successful," Poizner said.
Co-ops are formed when groups of small-business owners band together and use strength in numbers to negotiate lower insurance premiums. The agricultural trust was founded in 1983 by farm and ranch owners who had struggled to find insurance for their laborers because providers were reluctant to insure migrant workers.
Co-ops are able to keep low rates because, unlike traditional insurers, they're exempt from taxes on premiums, said Mila Kofman, Maine's superintendent of insurance.
Kofman, who has spent years studying co-ops, said they were also exempt from "assessments that fund state safety net programs, such as guaranty funds, which pay claims when an insurer becomes insolvent."
This can be dangerous, Kofman said, because co-ops don't have this safety net. And co-ops have a long history in California of being unable to pay claims as a result of insufficient funding and inadequate reserves.
"Many times it becomes a question of whether the trust will be in business when you really need it," she said.
Scores of California co-ops went out of business in the 1970s through the 1990s. Kofman points to Sunkist Growers and Packers Benefit Plan Trust, formerly based in Fresno, as an example. It was once a licensed insurance co-op that covered about 23,000 people. When it fell into insolvency because claims outpaced income in 2001, employers and medical providers were left holding the bag for about $11 million in unpaid medical claims.
In the worst cases, co-ops were run by individuals who drained the assets through administrative fees and embezzlement. The epidemic of scandals led lawmakers to move toward tighter regulation.
Successful operations like the United Agricultural Benefit Trust have to file with California's Department of Insurance. However, they still have lower capital requirements, so they don't have to put as much money away as traditional insurers do.
About 2,500 businesses buy insurance through the agricultural trust. Employers like it because it's cheap. They say quotes from the co-op are generally 10% to 15% lower than those from the bigger providers. And people in the co-op are essentially shareholders.
William Goodrich, president and chief executive of the agricultural trust, said the low costs were linked to its nonprofit status. The governing board is made up of nine volunteers.
"We're not looking to turn a profit," Goodrich said. "So there's even more money available to cover our members."
Co-ops drew national attention recently after Sen. Kent Conrad (D-N.D.) called for the creation of a system of co-ops that could be started with government "seed money."
Goodrich said his co-op worked well because it was narrowly tailored to the agricultural market in Arizona, California and parts of Mexico. But he is leery of the government's ability to operate such a business.
"If we're talking about a government official walking in and telling us how to run a co-op, it's not the same thing," he said.
There are other concerns. Private insurers can screen out people more at risk for serious illness, hedging against the danger of expensive and frequent medical bills, said Jamie Court, president of Consumer Watchdog, a Santa Monica group that monitors insurance practices. The fear is that co-ops will attract high-risk people who would otherwise go uncovered, which could bleed a co-op's funding dry, he said.
Court also maintains that the co-ops' small size would work against them if operating on a scale as large as Sen. Conrad's proposal. "Co-ops are simply too small to have any real bargaining power," he said.
Private companies insure millions of people and have accumulated massive pools of medical providers because doctors want in on the network. Doctors and pharmacies are willing to take lower rates when dealing with the big insurers because they're guaranteed large numbers of patients.
But some medical providers that deal with the agricultural trust say it is better than many larger insurers because it has a good turnaround rate for payments and is quick to respond to problems. Claims take about 14 days, while they may take a month with large insurers.
Member Juan Martinez said the difference between the co-op and traditional insurance providers was customer service. He learned that 13 years ago, when a doctor said he needed an MRI for headaches. Martinez's insurer at the time said he didn't qualify. And after more than a month of phone calls, he was denied the test.
Martinez later began work at Mack Ramsay's strawberry packaging plant and joined the co-op. When another doctor prescribed an MRI for the same ailment, he got it in two days. (He was fine, it turned out.)
With his previous insurer, "I had to call and call," he said. "With this one they did everything for me. They're more considerate about the people."
Quick turnaround and business with a personal touch are hallmarks of a co-op, Goodrich said, something bigger insurance companies can't offer. "Because we're small, we do a lot that they're not able to do."