Co-opting Public Plans

If the public plan option is dead—and many members of Congress and virtually every political observer say it is—President Obama may instead press for the creation of local health insurance co-operatives so he can declare victory in the healthcare reform war and go home.

The problem is that a lot of people believe co-ops create as many problems as they hope to solve. For starters, nobody knows if co-ops would work. Or how they'd would work, who'd be covered, how much they'd cost, who'd pay the bills, who'd provide oversight, and how they'd compete—if at all—against entrenched private health insurers that dominate their local markets.

Blogger Bob Laszewski—who calls healthcare co-ops the "single dumbest idea" he has heard in 20 years of health reform debate—notes that even if all those questions are answered, and cooperatives flourish, the end product would at best very much resemble the scores of community-based, not-for-profit health plans—including many Blue Cross Blue Shield plans—that already control more than half of the under-age-65 market in the United States.

Julius Hobson, a senior policy advisory at Bryan Cave LLP consultants, says it's difficult to see how the co-ops, with limited financial resources, few if any members to start with, and therefore no negotiating leverage, can hope to be competitive with large, wealthy health insurance companies that are virtual monopolies in some areas of the country. "If you look at a state like Pennsylvania, Blue Cross Blue Shield controls 90% of the market. There are two Blues in the state and they don't compete with each other. One has the eastern half, one has the western half. Tell me how a co-op is going to compete with them on price? How are they going to crack that market?" he asks.

Consumer Watchdog calls the co-ops "pseudo-reform" that could do far more harm than good if they create loopholes that could gut state consumer protection laws. The consumer advocacy group notes that Sen. Mike Enzi, R-WY, came up with a similar plan in 2006, which would have exempted the co-opts from state consumer protection laws.