Public Option Compromise

Our View: We Need A Health Reform Bill That Ensures A Competitive Insurance Industry

August 18, 2009

The big news during the weekend was the Obama administration's signals that it would be willing to compromise on what had seemed a central element of his proposed health care overhaul: the creation of a public health care plan to compete with private insurers. The idea has been encountering massive resistance from Republicans and some conservative Democrats, and on Sunday, Health and Human Services Secretary Kathleen Sebelius said that as long as a health reform bill ensures competition in the health insurance market, the president could support a bill that doesn't contain a public option.

The leading alternative to a public option is the idea of health cooperatives. Doctors and hospitals would band together to provide nonprofit health cooperatives owned and managed by their consumer members and, presumably, serve as a friendlier version of private insurance. The political calculus appears to be that they could provide the same sort of competition as a government option but without the stigma of "government" attached to it and all the ensuing histrionics about socialized medicine.

That would be great if there were any indication that health cooperatives could work on the scale necessary to provide meaningful competition to the private health insurance juggernaut.

Health cooperatives were a popular idea during the Depression - the time when rural electric cooperatives were stringing wires to underserved parts of the nation - but the vast majority of them failed. A few survived, most notably the Group Health Cooperative of Seattle.

That cooperative, after 60 years of existence, has grown to about 500,000 members. The largest private insurer in America, Wellpoint, has about 34 million. It would take an awful lot of Group Health Cooperatives, all of them providing uniformly lower rates, to make big insurers like that pay attention.

It's hard to understand why people who are skeptical about the government's ability to set up a workable public health insurance plan would find the cooperative idea more palatable. Under that scenario, the government would provide about $6 billion in seed money and create a temporary government agency to help set the plans up. It seems much more likely that the government could set up one workable health insurance plan than that it could successfully oversee the creation of dozens, perhaps hundreds of individual cooperatives on the state, regional and local levels.

All of those new cooperatives would have to raise capital, set up administrative structures and information technology, recruit participating physicians and more. The government, on the other hand, already has decades of experience in doing those things through Medicare and Medicaid and could likely get a plan up and running quickly.

But would that lead inevitably to a government takeover of health care? Not likely. The Congressional Budget Office estimates that only about 10 million people would enroll in the public plan by 2019.

Opponents of the public plan have a curious logic - they say on the one hand that it would be so attractive to consumers and businesses that it would drive private insurers out of business but that it would be so terrible at delivering health care that no one would want it. If a government competitor in the health insurance industry provides better are at lower cost, what's wrong with that?

That said, President Barack Obama is right to signal willingness to compromise on this point. Allowing critics to kill health reform overall would be a monstrous setback that would preclude the possibility of real reform for years. But if Congress passes a plan with health cooperatives that don't work well, it would create a political dynamic down the road that would make the creation of a government plan more feasible. And if the health cooperatives work, that's fine too. President Obama is right about one thing:

The goal is to get competition into the health insurance system. How we get there isn't important.

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