Why Sen. Kent Conrad’s health insurance cooperatives won’t work

Sen. Kent Conrad (D-ND) has proposed a compromise change in the health insurance markets that would put non-profit insurance cooperatives in competition with not-for-profit insurers like Blue Cross, Blue Shield and Kaiser Plans as well as several hundred investor-owned health insurers.

Since my wife, Susan Alt, CPCU, ARM and former editor of Business Insurance Magazine, was chairman of Colorado’s co-op, The Alliance, which was setup by the state to provide lower-cost health insurance to small employers, I have some opinions about Conrad’s proposal.

First, insurers, providers, large employers and politicians won’t let the co-op succeed. They’ve undercut state-level co-ops all over the country over the last 20 years or so. And they drove Colorado’s Alliance out of business several years ago. Their lobbyists are very experienced when it comes to defanging government sanctioned co-ops.

Second, what would Conrad’s non profit (really for-profit, tax-exempt) co-ops be able to do that the Blues plans couldn’t and didn’t? How would they cut costs more than Kaiser’s plans (non-profit insurers that make their docs rich)? The simple answer is that they wouldn’t survive long, and they wouldn’t make health insurance more affordable, because politicians would require them to provide incredibly expensive coverage with low co-payments and deductibles. Consumers would have no incentives to curtail health care expenditures, and the co-ops would have tremendous incentives to be the most rigid and nasty HMOs in history until shell shocked politicians put them out of business.

Links:

Trouble with Conrad’s compromise. CBS.

Jacob Hacker’s impact graphs:

Which brings us to Senator Kent Conrad, Chairman of the Senate Budget Committee, who has announced with much fanfare that he has solved the public plan problem—er, “problem.” His solution? Allow consumers, states, and anybody else so inclined to create cooperatives that would purchase health care for their members. Conrad has not offered much in the way of specifics on what the cooperatives would look like or how they would be chartered. Most important, he has offered no reason to think that the cooperatives he envisions could do any of the crucial things that a competing public plan must do.

An easy way to think of the public plan’s functions is the three “B"s: We need a national public plan that is available on similar terms in all parts of the nation as a backup. This plan has to have the ability to improve the quality and efficiency of care to act as a benchmark for private insurance. And it has to be able to challenge provider consolidation that has driven up prices to serve as a cost-control backstop.

Cooperatives might be able to provide some backup in some parts of the nation, but they are not going to have the ability to be a cost-control backstop, much less a benchmark for private plans, because they are not going to have the reach or authority to implement innovative delivery and payment reforms. And so Conrad’s idea appears to be yet another compromised compromise that cuts the heart out the idea of public plan choice on the alter of political expediency.

That’s not to say that encouraging cooperatives would be bad policy. In fact, Conrad has resurrected an old health care idea that taps into Americans’ strong belief in direct community control (what the political scientist James Morone has called “the democratic wish.”) Cooperatives of various sorts have been discussed and sometimes created to provide health care in the past. After the Great Depression, the Farm Security Administration encouraged the development of health cooperatives—which at one point had about 600,000 members, mostly in rural areas. But the cooperatives crumbled in the face of physician resistance (including boycotts), the lack of financial wherewithal of the cooperatives themselves, and the eventual withdrawal of government support.

Even today’s remnants of the cooperative movement don’t provide the most inspiring of lessons. The only survivor of the 1940s experiment, Group Health Cooperative of Puget Sound, does continue to operate as a tightly managed health maintenance organization, paying doctors on a salaried basis. It is well regarded, and indeed, was found to be remarkably efficient by the RAND Corporation as part of a famous 1970s analysis of the effect of insurance cost-sharing. Unfortunately, it’s now little different from other nonprofit HMOs, with around a half million members in Idaho and Washington State. By contrast, WellPoint—the nation’s largest insurer and a major force behind the defeat of health care reform in another West Coast state, California—has more than 30 million members.

And that’s the story of purchasing cooperatives writ large. They have been hard to establish or extend, and when they have been established, they’ve been under constant siege from doctors and insurers and eventually largely operated as private insurance plans or weak purchasing arrangements. It is hard to see how any sort of decentralized cooperative model could do what a public plan can do.

The left doesn’t like the co-op plan. Huffington Post.

Impact graph:

“This is a big mistake,” former Gov. Howard Dean told the Huffington Post. “These co-ops will be very weak. Many won’t have the half-million members that most experts think is necessary to influence the market… Insurance companies will be licking their lips.”

Sen. Kent Conrad and political reality. The Atlantic.

Impact graphs:

Supporters of Conrad’s proposal point out that the idea had been discussed in the meeting that Democratic Senators had with President Barack Obama earier in the week. Conrad is nonplussed about the reaction from liberal health reformers who want a robust public plan to compete with and eventually crowd out the private insurance market. Conrad’s point: that’s not possible, given the political calculus now. If you can change the political calculus, you’ll get the plan.

From the perspective of a liberal health care reformer, who’s to blame for this state of affairs? The White House. They’re not pushing back against Conrad. They’re not arguing in private for a tougher public plan. (An insurance industry executive who talks regularly to the White House lauded the administration yesterday for its honest brokerage.) The other reality Conrad confronts is that even the majority leader, Harry Reid, acknowledges that the reconciliation process for passing budget items (50 votes needed only) would take care of, at most, 75% of the reform proposal, excluding most versions of a “public plan.”  If you can’t get to 60, then you don’t have a bill. Sen. Max Baucus and Conrad are still opposed to reconciliation on principle.

 

 

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