The Wonk Room

Can Conrad’s Cooperative Compromise Meet The Goals Of A Public Health Care Plan?

In yesterday’s interview with the Washington Post’s Ezra Klein, Sen. Kent Conrad (D-ND) suggested that his proposal to replace the public health insurance option with a non-profit consumer-driven health cooperative, might allow the new plan to bargain with hospitals and doctors:

They might have that weight. One option is for a national cooperative. That would give it the heft and weight to compete. But you know, one of the interesting things when we talk to experts, is that they say critical mass is probably around 500,000 members. Puget Sound is probably around 580,000 and they compete successfully against much larger entities. The experts tell us that there are probably advantages of size up to a point, but after that point, the law of diminishing returns sets in.

Documents released by Conrad’s office have described the proposal as establishing multiple state or regional health insurance cooperatives. Multiple cooperatives — operating as non-profit health insurance plans — would lack the market leverage to bargain for lower prices, but an independent national program could attract large numbers and substantial market share to exert significant purchasing power.

Still, on its face, a non-profit cooperative in the mold of Group Health Cooperative in Washington State, is just another non-for profit health insurance company, a la a Blue Cross/Blue Shield. The theory relies on the belief that a truly consumer-drive health plan that elects a board of directors and hires a CEO, would have an incentive to reduce costs for its members and champion delivery system innovations. But a single health insurance plan has limited scope to influence the practices of providers and other insurers. In other words, it lacks the clout of Medicare — which can drive system innovations and payment reforms — Medicare-like administrative efficiencies, or the ability to use Medicare leverage to ensure a large provider network that accepts Medicare prices. A new cooperative health care plan won’t be able to lower costs and drive private insurers to aggressively bargain with providers (and pass the saving on to its beneficiaries in the form of lower premiums).

Some of these deficiencies can be overcome if Congress orients the new cooperative towards greater efficiency and care quality. Here are some suggestions:

1. To exert maximum purchasing power and achieve bargaining clout to compete with provider oligarchies (that are currently setting prices) Congress would have to establish a single national cooperative.

2. Congress should allocate federal start-up funds to quickly establish the cooperative.

3. The cooperative should follow all of the rules of the Exchange. It would have to guarantee coverage at community rates and would not be able to discriminate against individuals with pre-existing conditions, or impose lifetime or annual limits on benefits for any participant or beneficiary. The cooperative must commit an appropriate percentage of premiums towards medical benefits.

4. It should be transparent and accountable to its members and the public.

5. The cooperative should be required to provide the same minimum benefits as private insurers.

6. The cooperative could be required to implement delivery system and payment reforms and “replicate the accountable care organizations like the Mayo Clinic and Seattle’s Group Health that provide a proven model for delivering high quality, affordable care in a non-profit, group practice setting.”

While Congress can write the aforementioned rules into the plan’s new charter, the new cooperative will still lack the inherent advantages of a new public option. Thus, co-ops should be considered as a supplement to — not a replacement for — a public health plan.