Senator Conrad’s co-op health insurance proposal

Senator Kent Conrad (D-ND), Chairman of the Budget Committee and a member of the Finance Committee, has floated an idea he is trying to position as a compromise between those who want a government-run “public option” and those who oppose it.Senator Conrad’s theme is to facilitate the creation of “non-profit, non-government” health plans, but in which the government sets certain standards. The public expression of his idea is sufficiently vague that everyone can hear what they want to hear. Senate Finance Committee Chairman Max Baucus (D-MT) has said that he supports the idea.

As I understand it, Senator Conrad’s proposal would have the government create a new entity with a federal charter.Taxpayers would provide a few billion dollars to that entity. While this entity would be called the COOP, the acronym does not stand for “cooperative,” and the entity would not be a cooperative. The purpose of this new national organization would instead be to help form nonprofit health plans in each state. The key concept is that this new organization would have the authority to approve a nonprofit health plan to operate in a state, even if that State’s insurance commissioner said no. (As I understand it, the Conrad proposal dances around explicitly stating this ultimate hammer as bluntly as I have, probably in hopes of avoiding the wrath of the State insurance commissioners, who are often quite powerful.) In addition, this new entity could provide seed capital to new nonprofit health plans. The COOP would be a national chartering and financing organization.

The President would pick, subject to Senate confirmation, the people who run that new entity, but it would be a private nonprofit organization. This allows Sen. Conrad to say that it is “non-profit, non-government,” but the taxpayers are providing the initial capital, the government would set certain rules for this new entity, and the government is picking management.Under these conditions, the legal structure is largely irrelevant. It looks, walks, and quacks like a Government Duck.

In creating a new national insurance chartering entity, Senator Conrad is attacking a legitimate problem here, albeit with a solution that I oppose. When government mandates that health plans cover certain diseases, providers, or treatments, that causes premiums to increase. When government mandates that health plans charge everyone the same premium regardless of their age or health status, that also causes premiums to rise for most people. Many state legislatures and state insurance commissioners have gone hog-wild on insurance mandates. It is politically popular to mandate that a health plan must cover disease X, or not exclude person Y. These mandates accumulate, resulting in high premiums and all their knock-on effects:lower wages for those with health insurance, more uninsured people, and higher costs for government plans that must also comply with the mandates.

By giving this new entity the authority to bypass the State insurance regime for new nonprofit plans, Senator Conrad would create a new market for nonprofit plans with lower premium costs. So far, that’s good, but the Conrad plan then runs into three problems:

  • If it’s OK to bypass state insurance mandates for these new nonprofit plans, why isn’t it also OK to do so for all those Americans who now get their health insurance from a for-profit insurance company? The Conrad plan appears to create a distinct market advantage for one legal structure of health plan. Ultimately, what we should care about are the people who buy health insurance, not the legal or governance structure of the firm offering it to them. It would be unfair to the more than 100 million Americans who now get their insurance from a for-profit firm to say, “You can get lower premiums if you leave your health plan, because Congress thinks that nonprofit plans are somehow morally superior to for-profit plans.” Remember that nonprofit organizations make profits, they just distribute them differently. Where a for-profit firm distributes its profits to its owners, a nonprofit firm distributes them to some combination of its employees, customers, and whoever provided the startup capital.
  • Sen. Conrad’s colleagues on his Left want to change his idea. Rather than having the new entity be an alternate approval mechanism for new nonprofit health plans, Sen. Charles Schumer (D-NY) says the new entity should be a new national nonprofit health plan itself. This, of course, would be the public option, but with a non-governmental logo on the letterhead. The government would be financing the new entity, bearing the risk of unexpected payouts, determining premiums and benefits, and setting provider payment rates. The Schumer variant of the Conrad idea is the public option.
  • If you were willing to create an unlevel playing field that advantaged nonprofit plans, as Sen. Conrad suggests, then you run the risk that the government will show up a year or two from now with “just a few more rules” for the new entity to impose on plans. Since the new Conrad entity in effect becomes a new national health insurance chartering organization, every disease lobby group will immediately shift their focus to placing new requirements on the new entity. You will start to see an endless sequence of amendments to legislation, in the form of, “The new nonprofit chartering entity shall require that all chartered plans require coverage of ________________.” They’ll start with the diseases that affect kids and pregnant women, because those are the hardest to vote against. Alternatively, legislation could give the Executive Branch the power to set standards or goals for the chartering entity, the way that HUD sets low-income housing goals for Fannie Mae and Freddie Mac.

It’s not clear which of these outcomes is worse. I think everyone is familiar with the arguments against a pure public option.They apply equally to the Schumer variant of Senator Conrad’s idea.

A two-tiered structure, in which nonprofit health plans have a market advantage over for-profit plans, would be hugely disruptive. Individuals and employers would have a tremendous incentive to dump their current health plan in favor of a new one chartered by this new entity. To the extent that employers made this choice on behalf of their employees, it would conflict further with the President’s commitment that you can keep the plan you have now.

I fear that, like the public option, the Conrad option would crowd out private health insurance. Government would provide low-cost capital. Government would impose rules to suit the Congressional or Executive Branch whims of the moment. The ability to bypass state insurance commissioners would mean these new nonprofit plans, regulated by the new entity, would crowd out the existing market of private plans.

If you believe that replacing our current market mix of for-profit and nonprofit health plans with the government is a good thing, then go for the public option.

If you believe that we should replace our current mix of health plans with nonprofit plans regulated by this new entity, and you believe that the government will relinquish control of these new plans in a few years as Sen. Conrad suggests, then go with the Conrad option.

Please don’t misconstrue this as me defending the for-profit health plan that you may dislike. I am instead arguing that, whatever your view of today’s private health insurance market and private for-profit plans, more government involvement as proposed by Senators Conrad or Schumer will make things worse.

(photo credit: Wikipedia)

By | 2017-05-23T19:08:10+00:00 Thursday, 18 June 2009|