Conrad's Co-ops Are No Compromise Because They Are Designed To Fail

The problem with Conrad/Ross' [1] state based co-ops idea is not just that co-ops have proven to be a mostly unsuccessful model for health insurance. The real problem is that they are purposely designed to fail. Conrad wants [2] there to be 51 co-ops (50 states plus DC), and he would restrict the co-ops to only offering plans to the individuals and small businesses using the new health care exchange (roughly 10% of the population). According to Conrad's own admission [3] a health insurance co-op needs a minimum of 500,000 members to be able to negotiate competitive rates.

Using Conrad's own 500,000 member threshold, even if every single person using the new exchange joined a new state based co-op, over half the states in the country would not have a sufficient population to create a competitive co-op. Using a more reasonable assumption that as many as one fourth of individuals on the new exchange would choose to join a new state based co-op, only four states (CA, TX, NY, FL) might have enough people sign up for their state's co-op to barely reach the important 500,000 membership mark.

The restrictions placed on the new health insurance co-ops would make it financially impossible to create 51 new co-ops. With the restrictions, it seems that creating even 15 viable co-ops nationwide would probably be impossible. From what information I have, I suspect that between 4-8 is the maximum number of viable competitive co-ops that could be created nationwide. That would only be possible with a massive capital investment, focus on creating national not state based co-ops, and serious start up help from the government.

If the legislative restrictions were not bad enough to kill the co-ops, the absurd way they are set up should. According to Baucus' framework [2],

Grants and loans will be awarded by the Secretary of HHS based on recommendations made by an advisory board. The advisory board will be chaired by the Secretary (or a delegate) with other members appointed by the Majority Leader of the Senate (4 members), the Minority Leader of the Senate (3 members), the Speaker of the House of Representatives (4 members) and the Minority Leader of the House of Representatives (3 members).

This means that Senator Mitch McConnell and Congressman John Boehner would likely appoint half the board who decides which groups receive help establishing co-ops. Both have been highly skeptical of the whole idea of co-ops and health care reform. They have a strong political reason to make sure the co-ops fail. Giving them this power is like hiring a butcher to start a vegan restaurant.

I've previously explained how the trigger idea [1] can very easily be made worthless with only a minor change. Robert Reich [4] has done a great job explaining how Washington is filled with highly paid lobbyists whose job is to make sure things like a trigger are never pulled.

Neither Conrad's co-ops or Snowe's trigger are a compromise on the issue of a public option. They are fig leaves designed to fail. Their only purpose is to be a face saving measure to pretend that Obama did not break another campaign promise. A real “compromise” would be something (or group of things) that could fulfill the many goals of a public option in another manner. Small state based co-ops and triggers are not compromises, they are surrender.

Note: None of the Gang of Six represent a state large enough to support a state based co-op. In fact even if there was only one co-op for all six states it would still lack sufficient membership to be able to be competitive.

Crossposted on The Walker Report [5]