How Local Cooperatives Are Rebuilding Healthcare From the Ground Up

[00:00:00] We spend about $4 billion on healthcare and of each one of those dollars only about 15 and a half cents actually reach the clinicians and a huge percentage of that leaves our county never to come back. And so really the useful question is whether your community is building the thing that comes next. The cooperative is how Americans have always answered a market that wouldn't serve them and again none of this requires Congress. So when people ask me whether a system is collapsing, tell them to look at their own county.

[00:00:30] And see what's being built because that could be my county, it could be easily yours. And that can be what replaces the collapsing system.

[00:00:39] I live in a county of about 230,000 people up in the corner of the country where the Cascade Mountains meet the Salish Sea. And every year if you look at per capita spending in our country we spend about $4 billion on healthcare.

[00:01:10] And of each one of those dollars only about 15 and a half cents actually reach the clinicians that provide us all the care, the doctors, the nurses, the medical assistants, you name it. And a huge percentage of that leaves our county never to come back. And so for 10 years I've told you stories about communities that decided to keep that money home. You know, a hotel company in Orlando, a school district in Ashtabula, Ohio, group of school districts in Wisconsin.

[00:01:39] And today I want to talk a little bit about what happens when somebody like me goes home and starts to build it in their own backyard. And why a room full of Yale School Management students helped me bring this more clearly together. It was a few months ago I did a solo episode on how our system was collapsing. And since then I get the same question in many rooms. Is it really collapsing?

[00:02:08] And I'm asked to weigh in by, you know, employers and legislators and even people inside health systems. And my answer is, you know, the historian Luke Kemp who wrote this book called Goliath's Curse. He studied more than 400 collapses. And what he argues makes this sound a little bit better than what it may appear on the surface. And that is when the dominance hierarchy falls, most ordinary people end up actually a lot better off.

[00:02:37] And I think he's right about that with one condition. You know, the majority of the benefits happen when something better is already standing as the old structure gives way. You know, for example, Noah, you know, he built the ark before the rain. And so really the useful question is whether your community is building the thing that comes next while the old thing is standing but steadily collapsing under its own weight.

[00:03:01] And one signal that told me the builders are winning the argument is when a senior health policy advisor who'd spent years as a Capitol Hill staffer and in the White House looked around the American health care system and told me the one bright spot they could find was what was happening in our community. This community of employers, this community of employers, this community, this community of employers, advisors, and clinicians that are creating this new economy that's already over $100 billion in terms of annual revenue.

[00:03:30] It's not small anymore. So she ended up, you know, entered a career in Capitol Hill and the White House and joined thus, you know, joined this movement to build the next era of health care from the ground up. And so when someone who's seen the system across the entire country from the top chooses to build from the grassroots, I think it's worth paying attention. And of note is how cooperatives have been one of the most American ways of solving problems.

[00:04:00] Back before the country was founded in 1752, Ben Franklin helped start the first mutual fire insurance company in Philadelphia. Neighbors insuring each other's homes and decades before that was even a U.S. built or founded, he made it happen. And that's an organization that's still around, believe it or not. And at the same time or a little more recently, farmers built cooperatives to sell their crops together.

[00:04:28] And when private utilities decided rural America wasn't worth wiring up about a century ago, farmers from the late 1890s into the 1930s built their own electric cooperatives one community at a time. And then in 1935 and 1936, Washington, D.C. backed what farmers were already doing with low interest loans, model state laws and engineering help and left the building to the local cooperatives.

[00:04:56] Not even 20 years later, more than 90 percent of farms had power and the loan default rate stayed under one percent. Incredible return on investment for this government program. And to this day, 900 of them still exist, covering 56 percent of the landmass of the U.S. There's about 42 million Americans who are served today. That's one in eight of us. And that habit's never left.

[00:05:21] Today we've got credit unions, food co-ops, and those same rural electric cooperatives as some of the first organizations to fix their own health plans as employers themselves. Because governing something together is already in their DNA. And we can look, you know, across the pond to Europe where neighbors built health systems the same way and health plans the same way.

[00:05:42] Back in 1899, there were just 60 members of a Catholic workers association in Switzerland that promised to help carry each other's medical costs. And that promise became an insurer that covers about one in five people in Switzerland to this day.

[00:05:58] And when Bismarck built Germany's national health insurance back in 1883, he built it on the sickness funds workers that already started and kept and continued this day, these self-governing boards that about 88 percent of Germans are covered through these funds. Belgium runs its national system through member-owned cooperatives and mutual societies that are aligned around different groups, Christians, socialists, liberals.

[00:06:27] And the Christian one alone serves about a little over a third of the country. And in the Basque country, the worker owners of Mondragon, this huge cooperative complex, they've been shut out of Spain's social security system in the late 50s. So they built their own fund. Quick word for me.

[00:06:52] Rosetta Fest 2027 is set for August 18th to 20th at the Gaylord Rockies near the Denver airport. It's one event where advisors, employers, and clinical leaders who are changing how healthcare gets paid for and delivered all show up in the same room. If you've gotten anything out of this podcast, this is where the conversation continues in person. Go to rosettafest.org.

[00:07:17] Use the code podcast50 at checkout and you'll get $50 off your ticket. That's podcast5050, all one word, at rosettafest.org. And in 1984, the Spanish state authorized it to run the public health and sick pay benefits for its members.

[00:07:40] So, you know, in Germany and Belgium, these member-owned, member-governed funds became the operating layer of universal coverage. And in every case, it was neighbors organizing it first and then the law that followed. They didn't wait around for some federal law. You know, back in 2010, you know, the U.S. tried to shortcut. The Affordable Care Act funded 23 so-called cooperatives and almost all of them failed within a decade for various reasons.

[00:08:08] But one of them was they were created top-down, really the opposite of what a cooperative is. They were also barred from marketing, barred from hiring experienced insurance leaders, and then Congress cut the risk payments that it promised. They carried the cooperative name without members who'd already, you know, showed that they needed each other and could support each other. So recently, I gave a lecture in Therese Shaheen's public health entrepreneurship course at the Yale School of Management.

[00:08:37] And it was the first time I walked through the full community self-determination framework in public. And this lecture is really to a powerful group of the next, you know, leaders of our system. And they really pushed me on this framing I've been circling on for years. And this is for their course in public health entrepreneurship. So employer-based insurance is this accident of history.

[00:09:02] It's a leftover from the 1940s, you know, World War II era wage controls. And they'll be designed it to be permanent civic infrastructure. What community-owned health plans are is really the most plausible way I've found to turn that accident into infrastructure that the community broadly owns. And here's the part that surprises, you know, rooms that I present to like the Yale students.

[00:09:28] The scale where these plans work best is somewhere between 25 and about 500,000, maybe up to 700,000. I call it district scale, water, fire, school, congressional district. It's almost exactly the scale of a typical American county, which is where public health is already run. And the civic infrastructure already exists at that size and something that people are familiar with. Now it needs to be connected with how the overall money flows.

[00:09:54] The people leading the plans I write about in my book are tomorrow's leaders and the cooperators of a cooperatively governed health plan utility. And they'll do what rural electric pioneers did and do for health care. You know, for what happened in electricity can happen in health care. That is, those who are served are the owners of it. And the framework has two tracks. What I call the do-it-yourself track is open today under existing law.

[00:10:21] And communities from Wisconsin, Ohio are already doing it. The legislative track is modeled on rural electrification, patient capital that follows local organizing, a reinsurance backstop Congress can't yet yake away after the fact, and protections that keep community plans from being bought up, and legal defense modeling what community health centers already get. Every one of these pieces has decades of federal precedent.

[00:10:47] You've got the Rural Electrification Act I mentioned, the Indian Self-Determination Act, a little bit of Taft-Hartley. And, you know, the Indian Self-Determination Act is a great example. In an earlier episode, I spoke to the CEO of the South Central Foundation that runs a NUCCA system, probably the most admired health system in the world. And just a generation earlier had the worst health outcomes in America. So we're not waiting on that second track to run the first.

[00:11:15] Certainly the farmers didn't wait for 1936. They were going after it for decades. So when a nonprofit hospital or health plan is sold or converted, typically what happens is the law requires those proceeds to stay dedicated to the health of the community that built it. Those dollars become what's called healthcare conversion foundations.

[00:11:38] The organization that puts those together, sort of meets and runs events, it's called Grantmakers in Health. They've counted more than 300 of them, and they collectively hold $40 to $50 billion in reserves. And think about where that money came from. Local patients, local nurses, local donors, and years of tax exemption. Using it to help a community, so in health plan, again, is about as faithful to that original purpose as it gets.

[00:12:06] These foundations can also put their whole balance sheet to work with low interest loans, guarantees, reserve capital for a community-owned health plan that's highly transparent, alongside grants for things like primary care and a safety net. That's the kind of patient capital the rural electric cooperatives got from Washington in 1936. And it's already sitting in hundreds of communities today. So, you know, for years, my job has been chronically in the pioneers. The book is full of them.

[00:12:34] But I'd be a hypocrite if I only told other people's stories while my own county sent a big share of its $4 billion out of our community, out of our economy every year. So here's what a group of us in my community are working towards. We believe that within five years, every resident can have a primary care home. No one goes without needed care or into medical debt to get it. We call it a universal care guarantee.

[00:13:01] And it covers everyone, including those who carry no insurance card. And if supporting legislation comes along, it just happens to make this easier. But there's no reason to wait. The math is simple. In communities like my own, employers here typically pay 300 to 400 percent of what Medicare pays, which is the rate at which a hospital can break even.

[00:13:22] But when you factor in Medicaid losses, which underpays, typically it's about 150 percent of Medicare that causes a break even point. The National Academy of State Health Policy put the math to this. So we think a fair price of 200 to 225 percent of Medicare rates keeps the hospital healthy, frees up a lot of money.

[00:13:43] And we also have independent public hospital district about 30 minutes away governed by elected board, which gives patients a real choice for care as well. So the city and county can pool their employee plans. They're some of the largest employers in our community under state law that's been on the books for years. And they can create kind of a de facto local option or local public option. Private employers, some of them already have gotten started, could form a purchasing cooperative.

[00:14:12] When the public entities and the private employers do this in the open, anybody can follow this blueprint. People buy their own coverage can get a community designed option through Washington's public option. Not every state has that, but others could follow that. And for people with no coverage at all, we could fund primary care directly and lean on the hospital's own charity care policy to cover those people at below 300 to 400 percent of the federal poverty line.

[00:14:42] And the hospital has a more generous policy in the state law than the state law requires. There's no guarantee my county gets there first or at all. Any community that's informed and activated can run this same five-year play. And I'd help anyone who wants to try. And I'd be thrilled if a county I've never visited beats us to it. Yeah, some of it is hard. You know, our hospital is pretty cautious. The union bargaining will set the pace for how this goes. Licenses can take years.

[00:15:11] But there's partners along the way who can make this happen as we bridge to that. And we need patient capital lined up before we launch from local foundations and mission-aligned investors. Because that's what the failed cooperatives, the ACA cooperatives, lacked. They didn't have that grassroots support. And again, none of this requires Congress. So if you heard my conversation recently with Chuck Marone of Strong Towns, you heard his method for change. It was a four-step process that they use. Humbly observe.

[00:15:40] Find the next smallest thing. Do it now. Repeat. Very straightforward. My county's first year is a list of the next smallest things. And one public employer can fix their plan. One clinic can get going. One fair price benchmark gets published. And Chuck also talks about residents as shareholders instead of customers. I think it's a really good framing. And a community-owned health plan makes that literal.

[00:16:05] Seth Kaplan, who was another recent podcast, left me with the hardest question in American healthcare. Who owns enough of a geography to take responsibility for its health? In Singapore, it's a regional health system. In Alaska, it's a tribal health organization. My answer is for most of America is civic-minded employers and organizations. The people already paying the bills.

[00:16:27] You know, not only directly for the employers, but most of the way that funding happens for Medicare and so on is through employer-based and employee-based taxes. And often it's cooperatives that we've seen who know how to govern together, like credit unions, like food co-ops, like rural electric cooperatives. You see them as some of the winners of the Rosie Awards for the best health plans in America.

[00:16:52] Wisconsin showed how powerful it is when public entities and private employers join forces. And mission-minded medical groups, who are both major employers and the most trusted voices in town, they have enough of the geography to take responsibility for the health. So when people ask me whether a system is collapsing, I tell them to look at their own county and see what's being built. Because that could be my county, it could be easily yours.

[00:17:20] And that can be what replaces the collapsing system. The cooperative is how Americans have always answered a market that wouldn't serve them. And it's how much of Europe built its universal care. In both places, neighbors organized first and the law followed. So if you lead a city, a county, or a school district, look at your own plan and how it pays for hospital care this year.

[00:17:43] If you're a private sector employer, find two or three others in your community facing the same dynamics and get in the room together. You can make independent decisions but follow the same blueprint. If you lead a conversion foundation or a community foundation, put your balance sheet behind the reserves and the safety map. Now, if you lead a medical group, you're an employer and the most trusted voice in town. So go first. And if you're a neighbor, ask your local leaders who owns the health care dollars flowing through your town.

[00:18:11] You'll find the framework, the tools, and the people doing this work at healthrosetta.org. They all convene at Rosetta Fest every year. You can get resources at Nautilus Health Institute at nautilushealth.org. And the full stories are in my recent book, Relocalizing Health, Taking Back Healthcare, Rebuilding Communities. And there's a free download at healthrosetta.org slash friends. Thanks for listening. I'm Dave Chase, and this is Relocalizing Health.