As a former Indiana HS football coach who is now in my second year coaching in Michigan, I just thought I'd chime in and share how co-ops work in Michigan.
An example, Covert High School has 96 students. Bangor High School, with 349 students, is 12 minutes away. The two schools co-op for football, so Covert students can go and play at Bangor under the name "Bangor Vikings," and the MHSAA uses the combined enrollment of 445 for classification purposes. In every other sport, Covert and Bangor each field their own separate teams - they opened their basketball seasons against each other in 2022-23.
I think the main reason the IHSAA doesn't allow (or, rather, hasn't addressed the idea of co-ops) is simply because the amount of small schools who would be impacted by co-ops is fairly small. Michigan schools are organized much differently, so there are nearly 200 high schools throughout the State - public and private - with enrollments below 200 students. By comparison, a quick peek at the IHSAA member list shows that there are less than 40 high schools in the whole State of Indiana that have an enrollment below 200. Here's the MHSAA list of approved co-op programs for 2022-23 - It's 28 pages long (each school is listed twice, so 14 pages of co-op teams): https://www.mhsaa.com/sites/default/files/Enrollment and Classification/2223hscoop.PDF
To be fair a quick glance at the approved co-op teams also shows that a large number of these co-op football programs also happen to play 8-man so it's fair to say that the two schools are in a position that, without the co-op, *neither* team would be able to field an 8-man program.
Here's a link from the MHSAA explaining the co-op process: https://my.mhsaa.com/portals/0/documents/AD Forms/srcoop.pdf