Once a cornerstone of socialist communities, co-ops are finding a fresh audience in hardcore capitalists that want to keep the government out of health care.

As the national debate over medical insurance reform has intensified, President Obama has indicated the White House may back off its insistence on a government-run public plan. In turn, a plan that would replace a public insurance entity with health cooperatives consumer groups that would negotiate pricing with medical service providers has emerged as a potential alternative more palatable to critics.

Any bill that comes out of the House is likely to include a public plan, which is also part of the proposal drafted by the Senate s HELP Committee. However, the Senate Finance Committee is pushing to include health co-ops in its bill in place of the public model. Sen. Kent Conrad (D., N.D.) is leading the co-op cause and has suggested it is the only option that would win bipartisan support. The co-op plan aims to achieve the same benefits for consumers as a public option would but without government control, Conrad says on his web site.

Health co-ops are not a new concept. Washington State and Minnesota have co-op groups. And the idea dates back at least as far as 1930s and 40s, the heyday of the cooperative movement in the U.S., says Timothy Jost, a professor at the Washington and Lee University School of Law who has written on health-care regulation. The movement failed largely because the co-ops were small and undercapitalized, he says. (The Blue Cross/Blue Shield insurers also began in the 1930s and shared some of the characteristics of co-ops. But over time they began to look more like the private insurers they competed against, Jost says.)

Other co-operative models Conrad has held up as proofs of concept include electricity co-ops that operate in rural areas, Ace Hardware and REI, the outdoor clothing and gear retailer whose members get an annual dividend (typically 10% back on eligible purchases).

What would it take for health co-ops to work on a national scale today? We spoke to health-care policy experts to find out more about the prospect of co-ops as a health-insurance option.

How would a health co-op work?

Co-ops would function as member-owned nonprofit groups offering insurance to its members. They would be controlled by consumers rather than the government and would perform the same functions as a private insurer. In effect, the co-op would be the insurer: It would negotiate rates with medical providers and settle on premiums to charge members. And like a mutual insurance company, members would have some ownership rights, like being able to choose board directors, says Robert Field, a professor of health management and policy at Drexel University s School of Public Health.

In theory, the co-ops would operate on a health insurance exchange and be subject to the same regulations regarding minimum benefits.

Will health care be cheaper at a co-op than at a private insurer?

Co-ops would be able to offer less-expensive health care mainly because they re nonprofits. They don t have the same marketing expenses as for-profit companies; they have less executive compensation to pay out, and they don t have to worry about generating a profit. They would be able to use that flexibility to lower members premiums or improve care. But the co-op cost structure also depends on the number of consumers enrolled.

What are the disadvantages or risks?

Critics say co-ops are not going to attract enough members to wield the kind of bargaining clout to compete with private insurers. The fewer potential patients you represent, the less likely service providers are to listen to you.

If these co-ops remain local ventures according to Conrad s web site, co-ops could be formed statewide or in geographic regions they will likely fail because of a shortage of members. But if they operate on a regional or national basis, they d have a shot at succeeding, Field says. If you look at the big insurance companies, they insure tens of millions of people nationwide, he says.

So how many members does a co-op need to be financially viable and effective?

Conrad has said a Senate Finance Committee plan would establish co-ops with a minimum membership of 500,000 to ensure their bargaining leverage.

Jost doubts that critical mass is achievable. Co-ops are going to be the small guy on the block, he says. They ll be dealing with providers doctors, hospitals, clinics who already have contracts with the dominant insurer in that area. Providers have little incentive to offer co-ops a better rate than the one they give to commercial insurers. The idea that co-ops can compete with private insurers I don t see how that will happen, he says.

Would the co-ops require a federal investment?

There has been talk of money to help fund co-op start-up costs. Conrad has said $6 billion would be needed from the government. Jost says he doesn t think that will be enough to adequately fund such a venture and puts the price tag in the tens-of-billions-of-dollars range. Whatever initial seed money a co-op would receive from the federal government, ultimately, it would need to support itself.