ACA Co-op Troubles Not Surprising

Strong support emerged during the Congressional deliberations that led to the Patient Protection and Affordable Care Act behind a government-run health plan to compete with private carriers. The “public option” failed, but did create political space for the concept of consumer-owned, non-profit health insurance co-operatives. The co-ops found their way into the ACA, but now, as a group, are in big trouble. Eight of the nation’s 23 health co-ops are going out-of-business and more may follow.

The Case for Health Co-ops

Then Senator Kent Conrad championed health co-operatives during the health care reform debate. Modeled after the electrical co-ops in his home state of North Dakota, he saw them as health plans owned by local residents and businesses. They would receive start-up money from the federal government, but otherwise would compete against private carriers on a level playing field.

Co-op advocates hoped they would bring competition to markets dominated by too few private carriers. In addition, they expected these non-profits to provide individual consumers and small businesses additional affordable health insurance choices. With focus on the first goal, health co-ops might be in a better place today. Unfortunately, too often they sprung up in states where competition was already strong.

The ACA set-up a roughly $6 billion fund to help get “Consumer Operated and Oriented Plans” up-and-running. The long-term financial viability of health co-ops was to flow from premiums paid by those they insured and the “Three Rs”—programs established by the ACA “to assist insurers through the transition period, and to create a stable, competitive and fair market for health insurance.” Specifically these were the ACA’s reinsurance, risk adjustment and risk corridor programs.

It’s Tough Being New

A (not so) funny thing happened on the way to the health co-ops’ solvency. Starting a health insurance plan is difficult and failure always an option. (I know. I was executive vice president at start-up SeeChange Health, an insurer that failed last year.) New carriers, by definition, have no track record, no data concerning pricing, provider reimbursements, claim trends, and the like. Their first foray into the market is an educated guess. Worse, new plans usually have a small membership base. This provides little cushion against the impact of miscalculations or unwelcome surprises.

A new health plan launching in the midst of the industry’s transition to a post-ACA world faced added exponentially greater difficulties. In 2013, when most of the health co-ops launched, no one knew what the market would look like in 2014. Exchanges, metallic plan requirements, guarantee issue of individual coverage and more were all happening at once. Were employers going to stop offering coverage? How were competitors going to price their offerings? Would provider networks be broad or narrow? The questions were endless; the answers at the time scarce. In a speech during the lead-up to 2014 I described the situation as carriers “playing chicken on tractors without headlights in a dark cave while blindfolded–at night.”

This is the world into which ACA-seeded health co-ops were born. That they now face  serious financial problems should surprise no one. They saw themselves as “low-cost alternatives” in their markets. If they were going to err in setting prices it was not going to be by setting premiums too high.

Besides, if they priced too low they were protected by the risk corridor program. As described by the Centers for Medicare & Medicaid Services, which manages the ACA’s financial safety net, the “risk corridors program provides payments to insurance companies depending on how closely the premiums they charge cover their consumers’ medical costs. Issuers whose premiums exceed claims and other costs by more than a certain amount pay into the program, and insurers whose claims exceed premiums by a certain amount receive payments for their shortfall.”

The majority of the nation’s health co-operatives saw claims exceeding premiums. Being on the “shortfall” side of the equation, the government was to come to their rescue like the proverbial cavalry with the money needed to keep them going.

Except the cavalry is a no-show. Too few carriers had too little claims surpluses to cover the too large losses of too many health plans. Only 12.6 cents on the dollar due under the risk corridor program is expected to make it to plans on the shortfall side of the equation the CMS announced on October 1st.

The Math Always Wins

Several of the health co-ops were in financial trouble before this news. Losing millions of dollars in expected relief doomed more. As of today, the dollars-and-cents have failed to add up for CoOportunity Health (the co-op in Iowa and Nebraska), the Kentucky Health Cooperative (which also served West Virginians), Louisiana Health Cooperative, Health Republic Insurance of New York, Health Republic Insurance of Oregon, the Nevada Health CO-OP, Community Health Alliance (a Tennessee co-op), and the Colorado HealthOP. Just to use the Colorado situation as an example, the Colorado HealthOp needed $16.2 million; they expect to receive $2 million.

Do these failures mean health insurance co-ops are a bad idea? Not necessarily. What they point to is that health co-ops may have been better off focusing on bringing competition to markets where there were too few plans, not joining a pack where there were enough. Even then, the collapse of the risk corridor program may have doomed them, but they’d have stood a better chance.

As noted above, Senator Conrad modeled the health co-operatives on electrical co-ops found in some rural communities. Where too few customers make it unprofitable for traditional utilities to invest in the infrastructure required, consumers, seeking electricity, not profits, come together to extend the grid.

Those implementing the ACA should have followed this model. Instead of funding 23 health co-operatives, the Administration should have offered seed money to fewer co-ops located where they would be the alternative in the market, not just another one. This may have allowed them to extend financial support long enough to at least partially offset the risk corridor shortfall. Then, just maybe, we could have avoided the “surprise” of failing health co-ops.

Moderate Senate Democrats Seek Alternatives to Individual Mandate

In a thread to an earlier post on this blog, reader Curt Cella wrote ” I think if I heard just one Democrat admit that there might – MIGHT! – be some issues worth fixing with PPACA I’d feel a burst of optimism.” And he’s not alone. The sausage-making process that led to the Patient Protection and Affordable Care Act was even messier than usual. The result: legislation that is in dire need of fixing and a lot of people pessimistic about the future of health insurance.

Any changes to the new health care reform law, however, will require bipartisan support. Otherwise what emerges from the House will be defeated in the Senate and vice versa.  Which makes Curt’s wish especially meaningful. Unless some Democrats start calling for substantial changes to the PPACA (and repealing the 1099 reporting requirements in the law doesn’t count as substantial — worthwhile, yes, but not substantial) nothing important is going to change.

Fortunately, those waiting for “just one Democrat” to admit that the PPACA needs fixing are in for some good news. There are at least four Democratic Senators and one liberal columnist seeking meaningful change in the PPACA. The fix they are focusing on is the laws requirement that all consumers obtain health care coverage by 2014 (the individual mandate).

ABC News recently reported that a group of Democratic Senators are looking for alternatives to the individual mandate. (This is a provision in the law that requires all Americans to obtain health care coverage by 2014 or pay a modest penalty). As one of those Democrats, newly elected Senator Joe Manchin puts it “I’ve always had a concern and a problem with the mandate, that we were forcing it, basically saying by the law of the land you have to buy the product. But on the other hand, I know that’s been the lynchpin. I’m looking for flexibility any way I can.” Other Senators mentioned as engaged in this search for an alternative to the individual mandate are Senators Ben Nelson, Claire McCaskill and Jon Tester. ABC News describes them as seeking to “improve” the PPACA, not repeal it.

Needless to say, liberals are a bit unhappy with these moderate-to-conservative lawmakers. The Senators are not backing down, however. For evidence, take a look at an exchange between MSNBC host Rachel Maddow and Senator McCaskell on the individual mandate (the meat of the interview begins at about the 1 minute, 40 second mark).

That there are at least four Democrats looking for an alternative to the PPACA’s approach to the individual mandate is important. Together with the 47 Republicans they represent a majority of the Senate. Yes, Republicans in the last Congress proved that in the wacky world of the Senate a working majority requires 60 votes, but having a simple majority is no small accomplishment. If nothing else it puts pressure on others in the Democratic Caucus, especially moderates like Senators Joe Lieberman and Kent Conrad, to join in the fun.

Not all liberals are criticizing the Senators searching for alternatives to the individual mandate. Washington Post columnist Ezra Klein notes that “[r]eplacing the individual mandate wouldn’t be particularly hard” and then offers four suggestions. (For the record, I’ve offered my own individual mandate alternatives in previous posts).

Mr. Klein fixing the individual mandate as good public policy and winning politics for Democrats. “The danger …  is not that the law does get changed, but that it doesn’t. That the GOP won’t let it thrive and the Democrats won’t let it die and so it just limps along.”  Improving the PPACA makes it more difficult to repeal the law and more likely the legislation will be implemented in a constructive manner.

Of course, the individual mandate is just one part of the law that needs fixing, justifying a mere “burst of optimism.” Moderate Democrats should also look at teaming with Republicans to refine the medical loss ratio provision, make premium subsidies and tax credits available outside the exchanges, and enact meaningful medical cost containment.  Changes like these would justify long-lasting optimism.

Public Option Compromises Gain Traction

President Barack Obama wants a public insurance plan to compete with private carriers. Democrats in the House of Representatives want a government-run plan. Apparently so do a majority of Democrats in the Senate. However, as of now there’s enough Democrats in the Senate opposed to the idea to keep the support below the 60 votes needed to pass health care reform legislation. A compromise being considered in the Senate, however, could change the math, creating the potential government health plans will be part of the health care reform package ultimately enacted by lawmakers.

Advocates for public plans were set back when the Senate Finance Committee defeated amendments to add a government medical plan to the health care reform bill its writing. But liberals immediately pledged to keep pushing for the public option and many claim a public option is critical to meaningful reform. Whether progressives would defeat health care reform which doesn’t include a public health insurance plan is uncertain, but it is possible.

Enter Senator Tom Carper from Delaware. Senator Carper is a thoughtful moderate who voted against one of the public option amendments in the Senate Finance Committee, but voted for another. He is floating a compromise that not only may appeal to liberals, but to moderate Democrats and, conceivably, to Republican Senator Olympia Snowe, the only member of her party considered likely to support a Democratic version of health care reform.

Politico.com reports that Senator Carper proposal would give “states the option of creating a competitor to private insurers, (these competitors could be) a government plan, a network of co-ops, or a large purchasing pool modeled after the revered Federal Employees health Benefits Plan.” Unlike a compromise suggested by Senator Snowe which would create a national government-run plan only if private carriers failed to offer affordable coverage to at least 95 percent of the population, Senator Carper’s plan envisions only state (and, perhaps, regional) public plans and permits states to move forward, according to another Politico.com posting, “if affordable insurance is not widely available or the insurance market is dominated by only one or two players.” (It should be noted Senator Snowe has not sought a vote on her idea by the Senate Finance Committee)

Brian Beutler, writing on the Talking Points Memo blog, predicts Senator Carper’s idea may fail to gain support from either liberals or conservatives. He writes, “Liberal critics will charge that, while the plan doesn’t involve triggers, it does lack the heft that a plan organized at the national level would have to bargain down prices with providers” while conservatives will reject it as the first step toward a single payer system. “

Mr. Beutler may be right, but I think a compromise along the lines of Senator Carper’s proposal will gain traction. According to a second Politico.com posting, lawmakers, both public option supporters and opponents, are speaking positively about Senator Carper’s compromise.

The political reality is that there probably will not be enough votes to pass the “pure” public option desired by liberals. So they will face a choice: no government-run plan at all, a host of state-run insurance plans, or no health care reform. To reject health care reform because the public plans competing with private carriers are not controlled by the federal government is a political argument few liberals will want to make.

At the same time moderate Democrats may see the compromise as a way to push the entire public plan controversy to the states. This would allow them to escape the intense pressure they are under from party activists (and, perhaps soon, the White House) without personally voting for a government-run plan. State’s rights are usually championed by moderates and conservatives. It is certainly reasonable for a lawmaker to conclude that the public option is an appropriate decision for states and not the federal government. It is interesting to note that one of the three Democrats on the Senate Finance Committee to vote against both attempts to add a public option, Senator Kent Conrad described Senator Carper’s plan as a “very constructive option,” according to Politico.

What the effort to construct a workable public health insurance option overlooks is that it is virtually impossible to create a government-run plan that will both lower medical costs and compete fairly with the private marketplace. A public plan can lower health care spending only by imposing (not negotiating) low reimbursement rates on doctors and hospitals, most likely by tying them to other government programs such as Medicare. (It is important to note that Medicare often pays providers less than their actual costs). But imposing rates, something only monopolies and governments can do, is unfair competition (which is why we have laws against monopolies). But a public plan that merely negotiates rates with doctors and hospitals like any other health plan does is unlikely to be effective in reducing costs.

I’ve long predicted the health care reform legislation eventually enacted this year will not include a government-run health plan. Now, however, I have to recognize the possibility that a compromise along the lines of those proposed by Senator Carper or Senator Snowe might make it into the final package. It’s far from certain, but it is a possibility.

Senate Finance Committee Rejects Government-run Health Insurance Plan

The Senate Finance Committee continues to refine its health care reform legislation. Today it broke ranks with other Congressional committees with jurisdiction over health care reform by defeating amendments to create a government-run health plan. The debate was passionate, but ultimately enough Democrats joined with Republican Senators to defeat two attempts by the panel’s more liberal members to insert public option language into the bill.

Keeping the public option out of the bill was a major victory for Senator Max Baucus, chair of the Finance Committee. While acknowledging that a public option would “hold insurance companies’ feet to the fire,” his opposition was based on the goal of enacting health care reform this year. According to ABC News Senator Baucus believes health care reform including a government-run program cannot pass the Senate.

Senator Jay Rockefeller insisted, however, that a public health insurance plan was absolutely essential to meaningful reform. Failure to to create a public, non-profit plan to compete with private carriers, the Associated Press reports the West Virginia Democrat as saying, “was a virtual invitation to insurance companies to continue placing profits over people, and he predicted they would raise their premiums substantially once the legislation went into effect.”

Senator Baucus countered that the legislation being developed by the Senate Finance Committee includes numerous consumer protections, including a provision to prevent insurance companies denying coverage based on pre-existing conditions. None of the lawmakers on either side of the aisle spent much effort in defending the behavior of private insurance companies. Senator Baucus said he agreed with the intent of the Rockefeller Amendment to “hold the insurance industry’s feet to the fire,” according to the Washington Post. The Associated Press quotes Senator Jim Bunning as observing that “the private sector is not doing exactly what it should do with medical services.”

Republican members of the committee were unanimous in their opposition to public options. The Washington Post quotes the ranking GOP member of the panel, Senator Charles Grassley, as warning that a government plan “will ultimately force private insurers out of business” and that “The government is not a fair competitor. It’s a predator.”

The first public option amendment, offered by Senator Rockefeller, would have permitted the government-run plan to set reimbursements to medical providers at levels paid by Medicare for the first two years. (After that period, I believe the Senators proposal would have permitted the public medical plan to, like Medicare, impose rates on providers). It should be noted, Medicare often pays doctors and hospitals less than the cost they incur providing services. The five Democrats joining with Republican committee members to defeat this amendment were Senators Baucus, Thomas Carper, Kent Conrad, Blanche Lincoln, and Bill Nelson.

Senator Charles Schumer then proposed an amendment that would have required the public plan to negotiate reimbursement rates with providers, much as private carriers do today. Three Democrats – Senators Baucus, Conrad and Lincoln – voted against accepting this amendment.

I’ve maintained for some time that a government-run health plan was unlikely to be part the health care reform plan passed by Congress. The Senate Finance Committee’s rejection of this provision increases the likelihood of this outcome, but the debate will continue. Senator Schumer, for one, pledged to continue the fight. 

"’The present system is broken’" the Washington Post reports him as saying. “He said he was pushing for a public option not for ideological or symbolic reasons but because ‘costs are going through the roof.’ And he expressed confidence that, ‘with some work and some compromise,’  proponents of the provision eventually could get 60 votes on the Senate floor. ‘We are going to get at this, and at this, and at this, until we succeed, because we believe in it so strongly.’"

With polls showing 65 percent of the public support a government-run health plan operating like Medicare to compete with private health insurance plans, President Barack Obama continuing to argue for a public option, and Speaker Nancy Pelosi claiming the House was unlikely the House would pass health care reform that did not include a public option, this debate is far from over. Assuming the Senate Finance Committee moves forward a reform package this week, the next step will be for it to be integrated into the bill passed by the Senate Health, Education and Pensions Committee – legislation that does include a public option.

Getting health care reform is a long hike. Today’s vote in the Senate Finance Committee is a step along the way – albeit a very significant step indeed.

History Will Ignore Much of Today’s Health Care Reform Headlines

Living through historical moments can seem far less grandiose than reading about it. In the day-to-day grind of making history the big picture can get lost. Little issues take on huge proportions while overarching themes are hidden in the maelstrom. Historians get to step back, find the threads that build tension, create a narrative, and set-up the pay-off.

So it is – and will be – with health care reform. There have been a lot of distractions. For instance, critics of the Obama Administration have been pounding away at HR 3200, the House version of health care reform legislation. That legislation makes great fodder for 24-hour news channels and partisans across the spectrum. The bill offers something for everyone to demagogue. The fact that, in the end, HR 3200 – America’s Affordable Health Choices Act of 2009 – won’t have served as anything more than a lightening rod hardly matters.

The same can be said of the Senate Health, Education, Labor and Pensions Committee’s proposal. The Senate HELP Committee’s and the House health care plans gave liberals something to cheer about and conservatives something to attack. My guess is history will show that was its greatest contribution to the debate. Yes, elements of these bills will be included in the legislation that will be signed into law by President Barack Obama later this year. But that’s because there’s always been a broad consensus concerning health care reform. It’s the 25 percent or so of the issue on which there is disagreement that is causing all the ruckus. And at the end of the day, I’ve longed believed it will be moderates who resolve the contentious health care reform issues.

And those moderates are almost ready to make their positions known. Senate Finance Committee Chair Max Baucus has promised to unveil a formal proposal Tuesday or Wednesday. While it’s not certain that any Republican Senators will sign-on to the proposal, what Senator Baucus will propose will be far more moderate than the current alternatives. According to the Associated Press, Senator Baucus and the other five Senators negotiating a bi-partisan bill have made progress on several controversial items, “including health insurance for the poor, restrictions on federal funding for abortions, a verification system to prevent illegal immigrants from getting benefits, and ways to encourage alternatives to malpractice law suits.”

If compromises have been reached on these issues, HR 3200 and the Senate HELP Committee’s proposal will have played an important role. By being the most extreme bill available to critics during August it flushed out their attacks. This, in turn, made it easier for moderates to indentify the hot buttons they needed to address. A Washington Post story describing some of the solutions being developed by the Senate Finance Committee’s so-called “Gang of Six” underscores this. (The Gang of Six are Democratic Senators Baucus, Jeff Bingaman, and Kent Conrad along with Republicans Mike Enzi, Charles Grassley and Olympia Snowe). For example, illegal immigrants will be specifically prevented from obtaining any benefits from the insurance exchanges being contemplated. A government-run health plan – the means leading to a government takeover of health care according to critics – will not be missing from the proposal.

For the past few weeks, Republicans have associated President Obama with HR 3200 and the liberal Senate HELP Committee proposal. Yet he has embraced neither. Instead, he is has set the stage for circling the wagons around whatever moderate proposal emerges from the Senate Finance Committee. And Senator Baucus and the others are working hard to make that possible. For example, President Obama embraced a Bush Administration proposal to permit states to test approaches to medical malpractice reform. According to the Washington Post article, such a provision will be in the Senate Finance Committee’s bill.

Liberal critics of President Obama will accuse him of capitulating to conservatives on many of these issues, especially abandonment of a public option. Conservatives will say he’s proven himself to be a liberal tax-and-spender and government-expander (the proposal is expected to cost around $880 billion over 10 years). In the short term there will be much sound and fury over such issues by both sides. If the compromise health care reform solution put forward by Senator Baucus and his colleagues becomes law, however, history will little note nor long remember such histrionics. (Which, for those paying attention to the clichés in this paragraph would tend to prove that Abraham Lincoln trumps William Shakespeare).

So long as the outcome meets President Obama’s general principles for the health care reform the White House will declare victory. History will relegate talk of death panels, cries of socialism, and demands that government get out of Medicare (along with other government-sponsored programs) to footnotes, if that.

As with any major reforms, history will also likely show that the historic health care bill to come will accomplish less than its critics fear or than its advocates claim while at the same time bringing forward unintended consequences of significant proportion. But those problems will be a challenge for a future Congress and Administration. History, after all, is made one step at a time.

Outlines of Senate Finance Committee Health Care Reform Plan Emerges

Senator Max Baucus of the Senate Finance Committee is circulating a draft health care reform proposal that could form the basis for whatever reform package emerges from Congress. If there is going to be bipartisan health care reform legislation, this is it.

The draft reflects ideas from six members of the Congressional panel who have spent months trying to find common ground – Democratic Senators Baucus (Montana), Jeff Bingaman (New Mexico) Kent Conrad (North Dakota) and Republicans Mike Enzi (Wyoming), Charles Grassley (Iowa), and Olympia Snowe (Maine). The group, often referred to as the Gang of Six, has been working under tremendous pressure. Democrats have been pushing for action and liberals are concerned about giving up on, among others, provisions for a government-run health plan. Republicans have been equally vociferous on their three colleagues, some arguing that the GOP should seek to defeat any health care reform plan in order to deliver a political blow to President Barack Obama and others opposed to specific elements such as how to pay for insuring the uninsured. Rumors of the gang’s failure have been constant and consistent fodder for bloggers, talk shows and news programs, yet they keep on moving forward. The draft proposal is the most concrete evidence yet that these rumors are unfounded.

As reported by the Associated Press, the plan circulated by Senator Baucus includes a fee on insurance companies to help fund coverage for the uninsured, enabling non-profit co-operatives to compete with carriers, authority for health insurance exchanges (note: there would be more than one) to help individuals and small business purchase coverage, expansion of Medicaid, tax credits to help low- and middle income Americans buy private coverage, and a requirement for insurers to disclose their administrative costs and profits.

The Wall Street Journal describes Senator Baucus’ plan as requiring “most Americans to carry health insurance” and, in addition to a fee imposed on all insurers, would include a tax on “insurance companies when they offer particularly generous health insurance plans.”  The Journal describes the exchanges as providing “standardized information on insurance plans and pricing." The article also makes explicit what is generally assumed to be a part of any health care reform plan: carriers will no longer be able to exclude coverage for pre-existing conditions; drop insureds who become ill; and will cap out-of-pocket medical expenses.

Bloomberg reports that Senator Baucus’ proposal “works to reduce Medicare costs by rewarding doctors based on the quality of care provided, not the number of treatments or tests administered.”

The cost of the proposal is estimated to be $900 billion over ten years. The Senator is emphasizing that what he is circulating is only a draft and subject to change. However, he warned Senate Finance Committee members that they would need to suggest ways to pay for any provisions they suggest that increases the cost.

So what does all this mean? Well let’s get the obvious elements out of the way: the devil is in the details; it’s unclear how well the proposal goes after medical cost containment because the media tends to focus on what’s easier to understand (insurance reform) – the good news is there are indications reducing health costs is significant part of the package.

It’s also clear the proposal will be unacceptable to both liberals and conservatives. No problem, the more ideological on both ends of the political spectrum would be unhappy with any reform Congress is capable of passing. Liberals will complain because it doesn’t give government enough control over the nation’s health care system; conservatives because it gives government too much control over the nation’s health care system.

However, ideologues don’t pass much legislation, moderates do. And the Senate Finance Committee’s is apparently getting ready to pass legislation far more moderate than what has already been approved by the Senate Health Education Labor and Pensions Committee or by the three House Committees with jurisdiction.

Which means if the Senate Finance Committee actually moves forward something along the lines of the package being circulated by Senator Baucus, for better or for worse, what passes for moderate health care reform legislation is more likely to become a reality sooner rather than later.

Health Care is Local

Former House Speaker Tip O’Neill famously noted that “all politics is local.” And he’s right. He was not talking about the rules of the political game. Those are established by a national constitution and subject to state laws as well as local ones. He meant that the political dynamics of each district are what determines the ideological shading of a district.

Some examples are obvious: compare the voting record of legislators from Massachusetts and Utah. Others are less so: Republican Senator Charles Grassley had been a reasonable voice on health care reform until he remembered he was up for reelection in 2010 and saw how conservative Iowans were responding to unfounded claims of “death panels” and the like; he is now embracing aspects of the silliness.

Health care is local, too. The medical delivery system in Los Angeles looks far different from the one in Cheyenne. Even what’s considered standard treatment varies from community to community. And as Dr. Atul Gawande demonstrated in his New Yorker article, the cost of care varies greatly among localities based on medical provider’s approach to health care.

How the local nature of politics and health care interact underscores the complexity of health care reform. Because health care is local, what’s broken in the current system varies from place-to-place. Because politics and is local, acceptable solutions vary depending on locale. It may just be a coincidence, but it is worth noting that the initial advocate for community-based health insurance co-operatives, Senator Kent Conrad, hails from North Dakota where rural electricity co-operatives are common while many of those claiming only a government-run health plan will do represent urban areas.

Recognizing this dynamic, the the House Energy and Commerce Committee has described HR 3200’s impact on each Congressional District. (My thanks to Dwight Mazzone for bringing these documents to my attention). Reading through these is a glimpse of the richness and variety of America.

For example, in Wyoming (which has one Representative for the entire state) up to 19,000 businesses would be eligible for tax credits to pay for health insurance, 7,400 seniors would benefit from reducing brand name drug costs, much of the $23 million in uncompensated care hospitals and health providers face would be eliminated, and the tax surcharge to pay for reform would impact 3,120 households.

Compare this to the Los Angeles area district represented by Henry Waxman, the Chair of the Energy and Commerce. In California’s 30th District up to 14,300 businesses would be eligible for the subsidy, 5,200 seniors would see lower prescription costs, hospitals and other providers would be relieved of much of the $85 million in uncompensated care they deal with today, while 22,100 households would pay the tax surcharge.

The statistics cited come from legitimate sources, but are presented in order to muster support for HR 3200. Were the same information to be presented by House Republicans it would no doubt have a different spin. Nonetheless, the information is a treasure trove of insight into the local politics and health care that drives the health care reform debate.

These statistics should also give lawmakers demanding a single, one-size-fits-all solution to health care reform pause. As I’ve argued before, state health care reform efforts usually fail. America’s health care system is too large, too interrelated and too complex to be reformed on a state-by-state basis. States lack the tools needed to make meaningful changes work; the national government has those tools. However, the reforms themselves could benefit from local implementation. For instance, instead of creating one, national government-run health plan to compete with private carriers, enabling the creation of local health insurance co-operatives to generate competition where it is needed is more appropriate.

Finding the balance between federal and local management of health care is critical to a well-functioning medical system. It is also good politics.

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.

Public Health Plans and Level Playing Fields

Whether comprehensive health care reform should include a government-run health plan is receiving a lot of attention of late. As well it should. Several issues before Congress have the potential of creating substantial, negative unintended consequences, but few as much as a pubic health insurance plan.

Advocates of government-run plans insist, as The Huffington Post reports President Obama did at a town hall meeting in Green Bay, Wisconsin, on Thursday, that “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.”

However, as I’ve written before, a government health plan can have severe consequences to private carriers. Current government programs like Medicaid and Medicare pay doctors and hospitals less than their actual costs. They make up the difference by increasing what they charge private health plans. But Medicaid and Medicare don’t compete directly with private carriers. The government-run health plan advocated by President Barack Obama and many Democrats would. The cost shift their would result in an ever increasing pricing gap betweent he public plan and private carriers. Eventually private carriers would become uncompetitive and leave the market.

President Obama hears these concerns, but rejects them. In Wisconsin, The Huffington Post reports him as saying, “So, what you’ve heard is some folks on the other side saying, I’m opposed to a public option because that’s going to lead to government running your health care system. Now, I don’t know how clearly I can say this, but let me try to repeat it. If you’ve got health insurance that you’re happy with through the private sector, then we’re not going to force you to do anything.”

People can keep their private coverage if they want. Well, maybe. If the public plan behaves like Medicare, then this argument becomes a bit disingenuous. Medicare pays roughly 19 percent less than the actual cost care. Senator Edward Kennedy has proposed a public plan that pays providers 10 percent more than Medicare. This underpayment would force even more dollars to be shifted to private insurance companies. Not a recipi for those private plans you have the right to stay in to last very long.

President Obama is optimisitc a compromise can that avoids this inevitable result can be found. “And I think that we can come up with a sensible, commonsense way that’s not disruptive, that still has room for insurance companies and the private sector, but that does not put people in the position where they are potentially bankrupt every time they get sick.” Maybe he can. If so, it would be nice for him to describe what this compromise might look like.

Senator Kent Conrad a proposal that might work. He calls for creating non-profit, co-ops, owned and operated by local residents and small businesses. They would receive federal dollars to get launched, but otherwise would receive no favored treatment and would have to be self-supporting.  However, House Speaker Nancy Pelosi opposes such an approach according to the New York Times’The Caucus blog. At the same time, however,  Speaker Pelosi claims to want a public health plan to compete fairly in the marketplace. “It should be actuarially sound. It should be administrative and self-sufficient. It should be a real competitor with the private sector and not have an unfair advantage. When you say the words public option if that is the term about we will be using, you have to say right next to it, level playing field.”

The interesting conundrum this raises is, if a public plan is going to be just another option competing on a level playing field, why create it? Yet if it is given an artificial advantage it distorts the market in harmful ways. If a goal is to preserve the private market, this is problematic.

One option being discussed, according to the New York Times, is to introduce a public plan only “if people were not able to get insurance through private companies. This approach, called a trigger on Capitol Hill ….”  At least this approach makes some sense. If the private market in an area is dominated by one carrier, the government would introduce competition.  Competition does keep the participants honest. If it’s lacking in a community, a case can be made that the government can and should provide it.

Whether this limitation on public plans would satisfy its advocates or its opponents is yet to be determined. What is clear is that we’ll be hearing a great deal more about public plans, level playing fields and fair competition in the months ahead. Whether what eventually emerges is compatible with any of these concepts remains to be seen.

Senator Conrad’s Public Health Plan Compromise

For many Democrats, the benefits of a government-run health plan competing with private carriers in the individual and small group health insurance markets is simple: provide more choice to consumers and keep health insurance companies honest. Republicans and some moderate Democrats see the idea as the first giant step toward a government takeover of health care coverage fearing that a public plan would have an unfair advantage that would soon drive private carriers out of business. Both sides are gearing up for a tough and bruising battle over the issue. There will be many differences that will be hard to bridge during the health care reform debate. Whether the government should participate in the health insurance marketplace is, for now at least, the leading candidate to derail comprehensive reform.

Senate Kent Conrad, a Democrat from North Dakota, is seeking to prevent that from happening. According to the Associated Press, Senator Conrad is floating a compromise that would allow residents and small businesses in an area to crate non-profit health care cooperatives to offer health insurance. The idea is designed to appeal to Democrats based on the assumption that the co-ops would increase consumer choice and keep carriers honest. Because the co-ops would need to be self-supporting (the only government funding would be seed money designed to get them up and running) they would not have the unfair advantage against private health plans Republicans (and the insurance industry) fear.

The idea is getting a warm reception on Capital Hill. Senator Max Baucus, Chair of the Senate Finance Committee, said “the idea could be key to a bipartisan health bill,” according to the Associated Press. The AP quoted the ranking Republican on the Senate Finance Committee, Senator Charles Grassley, as saying “It’s got possibilities.”

Details concerning Senator Conrad’s compromise still need to be worked out. As those details emerge the proposal may serve as common ground for lawmakers working toward a bipartisan reform package. But those details have to satisfy some wary legislators. Reuters, for example, notes Senator Grassley’s insistence that “”any federal money used to set up what likely would be state and regional health cooperatives would have to be in the form of loans and that the government should have no role in their operation.” Meanwhile CNN describes the initial concern of Democratic Senator Charles Schumer that “co-ops might struggle to compete with big health-insurance companies and therefore would not help drive down costs.” However, Senator Schumer also said “he would see if they could craft a workable plan.”

Similar cooperatives have been set up to provide electrical services in rural areas. Would the concept would nationally for health insurance? That’s uncertain. Would health insurance co-ops serve the needs of Democrats without fulfilling the fears of Republicans?  Also uncertain.

In getting both sides to consider a middle way, however, Senator Conrad has made an important contribution to the health care reform effort.