Could Co-ops Provide Competition Where It’s Needed?

Based on what was being said on the Sunday talk shows today, the justification for creating a government-run health plan to compete with private carriers seems to be expanding. One of the fresh arguments does not seem to carry much weight, but the other might.

Some are claiming that consumers need to know they can buy the same health plan anywhere in the country. By having a public plan offering coverage nationally they would be able to change jobs, move to a different state and still keep their current coverage. Accepting that this would be a nice situation, it certainly isn’t a strong reason for a public plan given the risk that step entails. As I’ve posted before, the temptation to tip the playing field in favor of government programs is too tempting for lawmakers. Already on the table is allowing tax credits to make premiums more affordable eligible only for coverage purchased through an Exchange, for example.

The simple fact is, without a level playing field a government-run plan will eventually — not the first year, maybe not the fifth, but eventually — drive private carriers out of the market. If that’s what Congress and the Obama Administration want to do, they should just say so and try to make it happen. But if they are sincere about preserving private options for Americans, then they need to tread carefully. Creating a public plan just so consumers can keep the exact same plan when they move to a new state is simply not worth the danger.

The second justification is an amplification of the original rational for a public plan: that it would encourage competition in the market. On CNN’s State of the Union, this morning, Secretary of Health and Human Services Kathleen Sebelius brought up the lack of competition in her home state, Kansas (until her confirmation as Secretary, she was Governor of Kansas). And it is true that in some states a single carrier will have 60 percent or higher market share for medical policies sold to individuals and small businesses. In those states, additional competition should be beneficial.

Yet in other states competition is far more robust. In California, for example, there are several carriers competiting for individual and small group coverage. None, I believe, have more than 45 percent and at least three have more than 20 percent. A government venture is, arguably, unnecessary here.

If competition is sufficient in some states, but lacking in others, perhaps a national solution isn’t required. Instead, allowing the solution should be fashioned at a more local level. Senator Kent Conrad’s compromise proposal could be adapted to do just that. Senator Conrad is calling for the creation of non-profit health insurance co-operatives, much like what exists in some areas for electricity. They would be owned by local residents and businesses. They would compete under the exact same rules as private carriers. The government’s only role would be to provide seed money to get them launched. These co-ops could bring competition to places where it currently doesn’t exist. In an area where one carrier controls more than 50 percent of the market, for example, the government could assist in creating a health insurance co-operative — or several of them.

The health care reform debate is getting closer to the nitty-gritty stage every week. President Barack Obama is urging Congress to put a bill on his desk this year and Congressional Leaders are working hard to make that happen. To pass anything, let alone pass it quickly, controverseys like government-run will need to be resolved. Liberal Democrats are insisting it must be included in the final health care reform package. Republicans, including those who broke with their party to pass the Administration’s stimulus package, are adamantly opposed to it.  As the Associated Press reports Senate Minority Leader Mitch McConnell as saying, “I think that, for virtually every Republican, a government plan is a nonstarter.” Some  moderate Democrats are opposed to the idea, too.

Senator Conrad’s co-op idea may provide the needed common ground. Moderate Republican Senator Susan Collins noted, according to the Associated Press article, that the co-ops are “far preferable to the government-run plan that has been discussed by the administration. We need to better understand how it would work. But it’s certainly better than a Washington-run plan.”

The idea of a government-run plan is not the only controversey that will need to be addressed to pass comprhensive reform. But it is an obstacle. And it can serve as a template for resolving other issues. Replace targeted solutions for national ones where the problems are not national in scope. Helping health insurance co-operatives get launched in areas where there is no competition could solve local problems without creating a national one.

4 thoughts on “Could Co-ops Provide Competition Where It’s Needed?

  1. Ken

    The real kick in the seat is to make them compete by repealing the McCarran Ferguson act. That act allows insurers to conspire and fix the rates of what they will pay for services and what they will charge thier clients.

    The insurance company does not want you or anyone else, of course, to bring this up becuase they would also have to compete on auto, life, and homeowners insurance.

  2. June 25, 2009 at 9:45 am
    Let’s be relaistic here. The only reason that the co-op option is there is a cover for Democrats who fear the insurance industry. They will not induce the same kind of competiion that a public plan will and may have a very limited application in the very rural settling. Otherwise , it is a sham.

    There are two ways that competition would work.

    First, the government option will make these lazy inefficient insurers who we bailed out last year compete. The insurance companies fear the public option because they fear competition!

    Second, if you really want to preserve “free enterprise” repeal the McCarran Ferguson Act that makes sure that insurance companies do not compete. Read it, it is an antitrust exemption that allows insurance companies to fix prices in every state of the nation. Insurers do not compete, they conspire against the public.

    While insurers like to claim they are engaged in free enterprise, guess what? They do not compete because they have a cozy little antitrust exemption that allows them to fix prices! This is not availble to other businesses and industries in America. So, it is time for the Insurance companies to put up or shut up. If they don’t want a public option to compete with them, then they should be arguing that competition is good and be suggesting that the McCarran Ferguson Act that allows them to fix prices together be repealed.

    If Senators were honest and let the public know that they should repeal this law, and that proposal ever got airplay on TV, the insurers will be on their kness begging for the public option in health care so they can still fix prices on auto insurance, homeowners insurance and life insurance.

  3. You make a good point for co-ops. Granted the health insurance system in this country needs a drastic overhaul you need to remember that people in Washington passed legislation over the years that brought us to our current state of affairs. I think any plan that would circumvent a government run program should be debated as the politicians do not have a good track record on this issue or we would not be where we are.

  4. I believe the co-op idea could be the type of “kick in the seat” the private health insurance market needs to provide better value for the insurance premium dollar. This is only part of the overall health care problem, however. Over-utilization of health care services must be addressed, and this includes the elimination of “defensive medicine” through effective medical liability reform, and non-Draconian mechanisms for ensuring that health care providers are following the accepted clinical indications when ordering diagnostic studies and other services (such as physical therapy)–this can be done proactively (via prior authorization) and/or retrospectively (via utilization review) to seek out outliers.

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