Co-ops are awesome. A co-op can have a total monopoly and still operate as if under perfect competition because it has no motivation to price gouge its own membership.
This is indeed a great idea, as long as the co-op is big enough to effectively lower costs. If it isn't big enough to force serious competition, or maybe even provide its own services, the prices for medical labour, equipment and drugs won't be effected, and the only cost saved will be profit-taking on the part of the insurer. Better than nothing, but I don't think that will be enough to effectively control costs.
Co-ops have a difficult time forming in an established market, that's why it needs to be 'seeded.' A group of individuals has to be pretty hard pressed by a dysfunctional market before they're willing to invest the money and take the risk on a co-op, and established industries will usually do what they do and respond by trying to choke off the new competition.
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