Budget office calls healthcare co-ops ineffective

A non-partisan analysis says non-profit co-ops won't have much effect on insurance markets

By Mike Madden
Published October 9, 2009 12:54AM (UTC)
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The Beltway spin on Wednesday was that the Congressional Budget Office's analysis of the Senate Finance Committee's healthcare reform legislation was good news for the bill. Which it mostly was; over ten years, CBO said the proposal would cost $829 billion -- less than the $1 trillion figure that had frightened lawmakers in the summer -- reduce the deficit by $81 billion and extend coverage to 94 percent of the country.

What it wasn't particularly good news for, though, was for the notion of non-profit health cooperatives as a competitor to private insurance companies. The co-ops were what Finance settled on instead of a government-run public insurance option, largely at the urging of North Dakota Democrat Kent Conrad. While more progressive Democrats say only a robust public plan would really have enough market leverage to force private insurers and medical providers to lower their prices and expenses, the Finance bill stuck with co-ops in order to win support from the more conservative members on the committee.


That didn't impress CBO. "The proposed co-ops had very little effect on the estimates of total enrollment in the exchanges or federal costs because, as they are described in the specifications, they seem unlikely to establish a significant market presence in many areas of the country or to noticeably affect federal subsidy payments," the analysis said. Translated out of wonk-speak, that's pretty harsh; it basically says they won't work.

But Conrad didn't let that get him down. "The way CBO does their work is all based on precedent," he told me Thursday afternoon. "They really aren't free to look and look at the changed circumstances [that the legislation would produce], so I try not to be too critical of them." Conrad thinks CBO's assumptions don't take into account all the insurance market reforms and additional coverage that the legislation would also bring about. (Though as a leading budget hawk, Conrad does tend to rely on CBO's cost estimates for guidance at other times.) The co-ops just make sense to Conrad, who says they're based on non-profit insurance systems in France and Germany. "I got into this because I was asked to see if I could come up with a compromise between those who very much wanted a public option and those who very much did not, to try to get the best of both," he said. "I don't think the government-run model is the best. I know that this is unpopular in many circles, for me to say this, but I've got to be honest about the conclusions I've reached from these hundreds of hundreds of hours of hearings, the reading, the research."

Conrad is certainly right that the co-ops are unpopular. Progressive groups and like-minded experts ridicule them as ineffective; conservatives say they're just the government takeover of healthcare the right likes to warn about in friendlier form. Even Max Baucus, the Montana Democrat and Finance Committee chairman who drafted the panel's bill, hasn't bothered to defend them with much gusto. An alternate idea pushed by New York Democrat Chuck Schumer -- to set up a public option, but allow states to opt out of it -- was picking up some buzz Thursday.


Most Senate Democrats prefer a public option to the co-ops. A letter signed by 30 members of the party's Senate caucus Thursday bashed co-ops pretty bluntly. "While promoting more co-ops may be a worthy goal, it is not realistic to expect local co-ops to spring up in every corner of this country," the letter to Senate Democratic leader Harry Reid said. "There are many areas of the country where the population is simply too small to sustain a local co-op plan. We are also concerned that the administrative costs associated with financing the start-up of multiple co-op plans would far outstrip the seed money required to establish a public health insurance program."

Between that and the CBO language, any momentum the co-op idea had behind it seems to be vanishing fast. Conrad admitted as much. "It's another hurdle," he said. Democratic aides and White House staff will continue talks in the next few days on how to merge the Finance bill with a more liberal plan passed by the Health, Education, Labor and Pensions Committee. Once the Finance panel votes on the legislation Tuesday, lawmakers will probably get more directly involved.

Mike Madden

Mike Madden is Salon's Washington correspondent. A complete listing of his articles is here. Follow him on Twitter here.

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