Making The Case For Co-ops

President Barack Obama speaks about heath care during a town hall meeting at Central High School in Grand Junction, Colo. Saturday, Aug. 15, 2009.(AP Photo/Alex Brandon) AP Photo/Alex Brandon

Reihan Salam is a fellow at the New America Foundation. He is the co-author, with Ross Douthat, of Grand New Party: How Republicans Can Win the Working Class and Save the American Dream.

Why are Republicans rushing to oppose co-ops? In the New York Times, Robert Pear and Gardiner Harris describe the vagueness of the various co-op proposal floating around the moment before ending on a discouraging note.

"Senator Orrin G. Hatch, Republican of Utah, said he saw the differences as more semantic than substantive. "You can call it a co-op, which is another way of saying a government plan," Mr. Hatch said."

But is this a fair characterization? Mark Schmitt, editor of The American Prospect, has written a useful primer on the evolution of the public option, which has its intellectual origins in Jacob Hacker's Medicare Plus proposal. Schmitt, writing from a left-of-center perspective, notes the following:
"One key player was Roger Hickey of the Campaign for America's Future. Hickey took UC Berkley health care expert Jacob Hacker's idea for "a new public insurance pool modeled after Medicare" and went around to the community of single-payer advocates, making the case that this limited "public option" was the best they could hope for. Ideally, it would someday magically turn into single-payer. And then Hickey went to all the presidential candidates, acknowledging that politically, they couldn't support single-payer, but that the "public option" would attract a real progressive constituency."

This explains why many on the left are so disappointed by the apparent death of the public option. (Let me stress that I'm convinced that the White House fully intends to resurrect the public option.) Schmitt continues:

"But the downside is that the political process turns out to be as resistant to stealth single-payer as it is to plain-old single-payer. If there is a public plan, it certainly won't be the kind of deal that could "become the dominant player." So now this energetic, well-funded group of progressives is fired up to defend something fairly complex and not necessarily essential to health reform. (Or, put another way, there are plenty of bad versions of a public plan.) The symbolic intensity is hard for others to understand. But the intensity is understandable if you recognize that this is what they gave up single-payer for, so they want to win at least that much."

Indeed, Schmitt goes on to describe the public option as "stealth single-payer." He suggests - rightly, I think - that the Democratic left might have been smarter to have simply pushed a "Medicare for All" proposal. As Ramesh has argued, a key problem with the Obamacare effort has been the increasingly pervasive sense that the White House isn't leveling with the public. By simply calling for single-payer and, say, backing a tax hike on the rich, the Democrats could have set a new, and possibly quite popular, leftward benchmark. Unfortunately for the Democrats, President Obama failed to recognize that the promise of painless reform

Co-ops, in contrast, point in a very different direction. When Arnold Schwarzenegger - not a popular governor around these parts, I realize - called for a statewide healthcare reform, he tried to address "medical loss ratios," the share of premiums spent on medical care rather than administration or profits. He wanted to mandate that all insurers maintain MLRs of 85 percent or higher. MLRs for for-profit insurers tend to be in the neighborhood of 80 percent. This isn't a smart idea for a lot of reasons: the MLR is an artifact of accounting, and setting a rigid requirement will prompt little more than creative accounting. Yet it reflects a basic anxiety: do private insurers have the right incentives?

In Paul Krugman's latest column, he talks up Switzerland's 1994 healthcare reform.

"Switzerland offers the clearest example: everyone is required to buy insurance, insurers can't discriminate based on medical history or pre-existing conditions, and lower-income citizens get government help in paying for their policies."

Like the United States, Switzerland used to have a lot of for-profit health insurance firms. After the reform, insurers were obligated to offer health insurance plans on a non-profit basis. They can offer other insurance policies on a for-profit basis, and offering supplemental coverage has been a big source of growth for them. The vast majority of universal health systems built around private insurers have a similar non-profit requirement. The United States is definitely the outlier here.

The Democrats presented the public option as a matter of choice. Why not let consumers choose a leaner, more efficient system? But as Gregory Mankiw has observed, a public provider is fundamentally different from a private provider: it can't really go out of business.

"Even if one accepts the president's broader goals of wider access to health care and cost containment, his economic logic regarding the public option is hard to follow. Consumer choice and honest competition are indeed the foundation of a successful market system, but they are usually achieved without a public provider. We don't need government-run grocery stores or government-run gas stations to ensure that Americans can buy food and fuel at reasonable prices."

"An important question about any public provider of health insurance is whether it would have access to taxpayer funds. If not, the public plan would have to stand on its own financially, as private plans do, covering all expenses with premiums from those who signed up for it."

"But if such a plan were desirable and feasible, nothing would stop someone from setting it up right now. In essence, a public plan without taxpayer support would be yet another nonprofit company offering health insurance."

The case for co-ops is simple: we don't have enough non-profit insurers. Let's encourage the creation of more of them. This might be wrong. But the potential upside is considerable and the potential downside is negligible. Bitter opposition to the idea suggests that the right is needlessly hostile to reform.


By Reihan Salam
Reprinted with permission from National Review Online
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