Kent Conrad's kooky health care cooperative idea is still the Democrats' best shot at bipartisanship.

How to fix health policy.
July 27 2009 7:16 PM

Co-opting the Co-op

That kooky health care cooperative idea is still the Democrats' best shot at bipartisanship.

Sen. Kent Conrad. Click image to expand.
Senate budget committee Chairman Kent Conrad, D-N.D.

When Sen. Kent Conrad first proposed the idea of health care cooperatives back in June, the response was somewhere between Huh? and Huh. But as the debate over reform escalates, the attitude toward the formerly long-shot proposal may be getting closer to Aha!

The past few weeks have amounted to a long, cold shower for Democratic health care proposals. First Congressional Budget Office director Douglas Elmendorf told Congress that the House and Senate health committee bills would not only fail to "bend the curve" of ever-rising costs of health care but that the curve "is being raised." On Saturday, the CBO squashed the notion that a new Medicare advisory board would save the government much money. Then on Sunday, Sen. Mitch McConnell stated that Senate Republicans would not support a plan that included a public option—hardly a surprise, but essentially killing any possibility of a bipartisan solution that also meets the administration's stated goal. Meanwhile, the Democratic leadership punted its own deadline until after the August recess.

In the current stock-taking of the various bills, Conrad's cooperative proposal is still on the table. The Senate Finance Committee hasn't released its own bill—there's only a 10-page outline leaked in June. But the co-op plan appears to be its preferred compromise. A Democratic Senate aide said the co-op plan is still "very much at the fore of what's being considered as a viable alternative to the public option."  (Update 11:53 p.m.: The finance committee has now all but dropped a public option and an employer mandate from its bill, according to the Associated Press.)

A cooperative is basically a not-for-profit patient-run insurance organization. Instead of executives running it, you'd have people who are themselves enrolled. There would be relatively little overhead compared with a private insurance company—no profit means less advertising and no commissions or underwriting—and every patient would have a say in how it's run. Many such cooperatives already exist. Group Health Cooperative of Puget Sound near Seattle and HealthPartners in Minnesota are two of the most successful examples.

Still up in the air is what a national co-op would look like. Would it be truly nationwide or would each state have its own? How much startup funding would it get from Congress? Will the government have a hand in running it, or will it be entirely patient-controlled? Would it have the power to negotiate the best rates, to make it competitive with private plans?

Depending on the answers to these questions, the cooperative proposal could be the Democrats' greatest defeat or biggest victory. It could be as unambitious as adding another private plan to the mix. Or it could be nearly synonymous with public-option itself.

First is the question of a national vs. state-based cooperative. Most health care experts agree that in order to compete with private companies, a cooperative would have to be nationwide or, at the very least, regional. The more people enrolled in an insurance program, the more leverage that program has to negotiate low prices for treatment. Conrad has cited estimates that in order to work, a co-op needs at least 500,000 people. States with small populations like Wyoming or Montana don't have nearly enough people to reach that level. Kathleen Sebelius has offered cautious support for the co-op idea—as long as it is nationwide.

The cooperative would also need a serious injection of federal funds. Any new plan would enter the health care market at a disadvantage. Most local markets are dominated by one or two large insurers. So in order to be competitive, a co-op would have to offer competitive rates to attract patients. Here co-ops run into a chicken-and-egg problem: They can't get good prices until they have a critical mass of patients, but they can't attract those patients without low prices. A new cooperative would thus need an initial financial boost—probably between $3 billion and $10 billion—to help it reach out to patients and providers alike, plus other start-up costs.

Most important, though, is the ability to offer the lowest rates. It's one thing for a cooperative to simply be one insurer among many. It's another for Congress to make sure the cooperative offers the best rates possible. The most extreme solution would be to offer insurance at discounted Medicare rates. This is unlikely to happen, seeing as the relatively strong House bill offers the same rates as Medicare plus 5 percent.

More likely, Congress would guarantee that a cooperative would get the most favorable rates available that aren't Medicare rates. Say a private insurer managed to negotiate down the price it pays for a hospital visit. The cooperative would automatically be allowed to get that price, too. It would therefore never undercut private insurers, but would always match the best prices available. Some might call that an unequal playing field. Perhaps a better formulation would be that some insurers are more equal than others.

If Congress passed a bill that was national, injected significant startup funds, and guaranteed the lowest possible rates, the result would come pretty darn close to a public option. Sure, a true government-run public option would be able to mandate payment reforms like paying for health care "episodes" rather than individual hospital visits. A public option could also avoid many of the startup costs by building on the pre-existing Medicare infrastructure, which already has relationships with doctors and hospitals. (Also, keep in mind this is all separate from the question of how actually to pay for health care reform.) But those features also happen to be the ones that scare conservatives most—namely, the government's ability essentially to mandate reforms in the private sector and the looming threat of single-payer Medicare for all.

At the same time, a cooperative would be more flexible than a public option. It wouldn't be subject to government salaries or hiring practices and would be able to tweak its offerings relatively quickly. (By contrast, it took the government 35 years to include prescription drugs in Medicare.) Perhaps the greatest advantage of a cooperative is simply what it's called. If it's not called a "public option," Republicans can claim victory. But if it provides most of the benefits of a "public option," so can Democrats.

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