How the "Public Option" Flew the Co-op

| Fri Jun. 19, 2009 1:17 AM EDT

This week I’ve been writing about the destruction of all the best elements of health care reform in the name of political expediency. Most significant is the bait-and-switch that’s taking place on the “public option”–which was supposed to provide a government-run alternative to private health insurance plans. Through the handiwork of some Senate Democrats seeking bipartisan compromise, the public option is quickly devolving into something that really isn’t public at all.

The latest news on this subject comes via Ezra Klein’s Washington Post blog, which reported last night on the content of a new health care reform bill drafted by the Senate Finance Committee. After an earlier proposal from Ted Kennedy’s Health, Education, Labor and Pensions (HELP) Committee was widely attacked for its liberal ambitions and high price tag, the Finance Committee is floating a cheaper—and, of course, weaker—alternative. According to the highlights provided by Klein, subsidies for the poor have been reduced, Medicaid eligibility has been tightened, and “There’s no public plan mentioned anywhere in the document.”

What is in the Finance Committee’s draft, and slated for further discussion, is a scheme for health care “co-ops” that would pool individuals and businesses together into consumer co-operatives to purchase health insurance and services. (Kaiser Health News has profiled one existing co-op in Seattle.)  The idea was first proposed by North Dakota Democrat Kent Conrad, and supported by Finance Committee chair Max Baucus. Baucus has been talking out of both sides of his mouth on the public plan for some time, and seemed to quickly latch onto the co-op idea as means to having it both ways.

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Speaking in Green Bay last Thursday, President Obama said: “If the private insurance companies have to compete with a public option, it will keep them honest and it will help keep their prices down.” On the same day, the New York Times reported:

Senator Max Baucus of Montana…said Thursday that the public plan could take the form of an insurance cooperative that would be owned and operated for the benefit of its members, but not run by the government.

“I am inclined, and I think the committee is inclined, toward a co-op,” Mr. Baucus said. “It’s not going to be public, we won’t call it public, but it will be tough enough to keep insurance companies’ feet to the fire.”…

By the time the Sunday morning news shows aired, HHS Secretary Kathleen Sibelius was speaking of co-ops as a road to bipartisan compromise—and with the advent of the draft bill from the Finance Committee, it seems like the fix is in. Especially with Ted Kennedy absent from the fight, this is all we are likely to get in the way of a “public option.”

True to this spirit of bipartisanship, the co-op scheme is a weak, tired, nearly meaningless idea that would represent no real alternative to business-as-usual in the health insurance industry. In the best-case scenario, which is far from guaranteed, the co-ops might have a less corporate governance structure than other insurers and receive federal subsidies for startup costs and more expansive coverage. In the worst case scenario, they would in effect be private insurance companies by another name. And at least some of the initial capital, in all likelihood, will come from the members. You can be sure all the Americans who are out of work and too poor to buy insurance people will appreciate that—and with the lower subsidies in the Finance Committee’s draft bill, most of them will still be on their own.

Much is being made of the fact that the co-ops would be non-profits. But really–so what? Almost half of Americans with private health insurance are currently covered by non-profit plans.  As a whole, they haven’t proven themselves much—if any—better or cheaper than the for-profit insurers, and they still fail to cover 50 million Americans.

The giant Kaiser Permanente is a non-profit. And while some of them have privatized, many of the Blue Cross-Blue Shields are still non-profits as well—and, in fact, got started as co-ops. Some of these non-profit insurers are well known for paying huge executive salaries and hoarding huge cash reserves, while charging the same high rates and offering the same rationed care as private plans—and enjoying tax exemption to boot.

Supporters of the co-ops also insist that they will offer real competition to the private insurers, and bring down costs for their members by giving them bargaining power with health care providers. Tim Foley made short work of this claim in a post on Change.org:

Former Labor Secretary Robert Reich articulates well most people’s gut-reaction: “Nonprofit health-care cooperatives won’t have any real bargaining leverage to get lower prices because they’ll be too small and too numerous.” Conrad’s answer to that has been consistently to say, “But you know, one of the interesting things when we talk to experts, is that they say critical mass is probably around 500,000 members.” Let’s skip over the difficulties in finding half a million people for a co-op. Let’s just say that 500,000 non-profit customers doesn’t change the game. Know how I know? Because, as pointed out by Bob Laszewski, Conrad’s home state of North Dakota has 475,000 people enrolled in the not-for-profit North Dakota Blue Cross Blue Shield. That’s not just competition–it’s a monopoly, 60% of the market. Guess what? It hasn’t helped. Premiums jumped 74% in the past seven years.

In fact, as the State of the Division blog  points out, it’s conceivable that private, for profit companies could “get in the back door” of the co-op plan: What’s to stop a co-op from actually licensing itself out to a private insurance company–or hiring one to administer its fledging business? The publicly traded (and scandal-ridden) Wellpoint is currently the largest Blue Cross and Blue Shield licensee. (In an instance of true bipartisanship, Wellpoint’s Board of Directors includes the wife of Democratic Senator Evan Bayh, as well as George W. Bush’s uncle.)

Although the demise of a real public option will likely be blamed on Republican opposition, it’s moderate Democrats who came up with the phony co-op plan. This should hardly be surprising coming from Max Baucus, who, as the Montana Standard reported this week, has received more campaign money from health and insurance industry interests than any other member of Congress. But the so-called liberal Democrats--again, in the absence of Kennedy--also look likely to cave all too soon, along with the White House.

So much for “incremental” health care reform. At this rate, the increments will soon be so small that they’ll be invisible.

(Incidentally, Karl Marx toyed with the idea of cooperatives as a means to worker control of production, and Lenin supported them for a time as an incremental step in the transition to socialism. But things got out of hand, and what we got instead was the Russian Revolution.)

UPDATE: Independent filmmaker Lee Stranahan picks up on my point about co-ops in this video.