How Health Insurance Co-Ops Work

Health Insurance co-ops (cooperatives) are health payment structures that offer health insurance at reduced costs while continuing to compete with private insurance companies.

During conversations about healthcare reform, and while looking for better ways to establish affordable healthcare for all Americans, discussions took place about the development of health insurance co-ops, which are also called health insurance cooperatives.

woman paying for medical care
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How Co-Ops Work

Co-ops are owned by the people who have insurance with them. Thus they are called "member-owned." In effect, health insurance co-ops are health insurance organizations owned by the patients they insure. They are comprised of thousands of members, meaning the costs of care gets spread out across all those people. Since co-ops are not interested in profits, their costs are real costs, and not inflated by administrative costs. Additionally, because co-ops only collect what they spend, they have no tax liability, which keeps costs even lower.

Co-Op Member Ownership

One way to understand co-ops is to think about a credit union that is member-owned. Since its members are investing in its own members, and since it is not trying to turn a profit, members might get better returns on their savings, or better discounts on loans, because the administrative costs are low and there is no tax liability.

Health insurance co-ops already exist in many states across the United States. They are often formed by employers with something in common; for example groups of farmers in California or groups of small businesses in Minnesota. There are also other forms of insurance co-ops such as car insurance or homeowners insurance.

Insurance co-ops can be developed by any type of organization. National, state, or local organizations could develop a health insurance cooperative. A local hospital might start one. A large employer might start one. Again, think about all the kinds of credit unions that exist and you'll have an idea of how health insurance co-ops could be established.


The primary advantage of health insurance co-ops is the fact that, since they represent thousands of members, they have better negotiating power with providers, keeping costs lower than individual (private) insurance would be. Additional savings come from the absence of profit pursuit and their non-taxable status.


One important disadvantage to health insurance co-ops is that in many states, co-ops are not required to follow the same regulations and guidelines that private insurers must. Should a co-op run out of money, there may not be the same kinds of safeguards in place to make sure those who participated in the co-op would be able to have their healthcare needs covered.

Healthcare Reform

Health insurance co-ops have been given a new name to go with the "co-op" acronym. CO-OP now stands for Consumer Operated and Oriented Plan.

The new law provides for the creation of "qualified nonprofit health insurance issuers" to offer qualified health plans in individual and small group markets (Section 1322).

3 Sources
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. American Academy of Family Physicians. Health care cooperatives: definitions and state examples.

  2. Norris L. CO-OP health plans: patients’ interests first.

  3. National Association of Insurance Commissioners. Health co-op.

By Trisha Torrey
 Trisha Torrey is a patient empowerment and advocacy consultant. She has written several books about patient advocacy and how to best navigate the healthcare system.