If public option in healthcare is dead, what's next?

Obama administration officials have been talking up consumer-owned cooperatives. But they might not be big or strong enough to compete.

By , Staff writer

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    Jay Allen (right) protested outside a building in Dallas on Monday where two lawmakers were holding an event on healthcare reform.
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If the public option is dead, what might replace it?

In recent days, the White House pointedly has become less supportive of including in healthcare reform legislation the so-called "public option" – a government-run health plan intended to compete with private insurers.

As an alternative, Obama administration officials have been talking up consumer-owned cooperatives. They say that these nonprofit ventures – modeled after agricultural and electrical co-ops common in rural states – could help keep costs down and ensure that people in all parts of the United States have adequate insurance choices.

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But some Democrats worry that co-ops would not be big or strong enough to slug it out with private industry. And setting up a national network of health co-ops might be extremely difficult and expensive, some say.

"It's hard to imagine how that takes on reality," says Thomas Miller, an American Enterprise Institute fellow who served as health policy economist for Congress's Joint Economic Committee.

On Monday, President Obama sought to reaffirm his support for the public option. He still believes that a public plan would be the best way to lower costs and ensure choice and competition in the health-insurance marketplace, said White House health-reform aide Linda Douglass in a statement.

But Mr. Obama did not say that the public option must be in any healthcare reform bill that emerges from Congress. And on Sunday, Kathleen Sebelius, secretary of Health and Human Services, said that a public insurance plan is "not the essential element" of the administration's healthcare overhaul.

The fact is that there are not enough votes in the Senate to pass the public option, said Sen. Kent Conrad (D) of North Dakota on Sunday. Senator Conrad, chairman of the Senate Budget Committee, said that continuing to push it as an element of heathcare reform would be "wasted effort."

So what's the alternative? Co-ops, perhaps. Secretary Sebelius indicated that the administration would be open to cooperative health-insurance groups. Conrad is a primary author of this idea, which would involve thousands of ordinary Americans banding together and pooling health-insurance premiums in their own nonprofit venture.

How would these co-ops work? The federal government would have to start them off, according to Conrad's proposal. Uncle Sam would provide $6 billion in loans and grants to help doctors, hospitals, and other healthcare providers form nonprofit cooperative networks. Temporary government boards would oversee their formation.

Co-ops could be local, or state, or national in scope. To become financially viable, a co-op would need about 25,000 consumers to join, according to Conrad's plan.

As mutual insurance companies, policy owners would have some ownership rights – perhaps gaining rebates if the plan ends a period in the black.

Liberal Democrats tend to think that co-ops would be too small and fragmented to provide much of an alternative to big private insurers. Under Conrad's own estimates, for example, co-ops probably would have to grow to 500,000 members before they would have the muscle to negotiate prices with health providers.

Republicans see an opposite problem: They believe co-ops would be the public option, wearing a wig and face mask.

" 'Public option' by any other name is still government-run health care," according to a Republican National Committee e-mail to reporters.

Some healthcare experts have yet a third view: Under pressure to grow and provide more services, co-ops eventually would opt for the greater revenues and access to capital of the private model.

At a recent seminar sponsored by the Alliance for Health Reform, the prominent economist Uwe Reinhardt of Princeton University said that he "can't keep a straight face" when the topic of healthcare co-ops comes up.

"I'm old enough to remember there were such co-ops once," Professor Reinhardt said. "They were called 'Blue Cross....' Most of them went for-profit. So I think that's what would happen with the co-ops."

So what does Reinhardt think should be done to ensure that private insurers have adequte competition? Nothing.

If the public option is so politicaly divisive, then just go ahead without it, he said. Washington could always revisit the issue, if necessary.

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