Not even a good co-op

NOT EVEN A GOOD CO-OP…. Proposals for non-profit health care cooperatives (co-ops), offered as an alternative to a public option, have consistently been a little vague. They’re generally a poor substitute, but at least in theory, some have described credible co-ops that might be able to offer some competition with private insurers. It would depend on how it’s set up.

Senate Finance Committee Chairman Max Baucus (D-Mont.), despite initially offering rhetorical support for a public option at the start of the process, today unveiled his reform framework, which relies on a co-op system. Ezra Klein, who’s been blogging the new Baucus Plan all afternoon, describes what Baucus has in mind.

The co-ops are on the state level, with each state pretty much required to have one. The 50 co-ops can then band together to leverage their national purchasing power. Sounds good, right? Sort of.

The co-ops can only compete in the small group and individual markets. That is to say, if the co-ops prove effective, and The Washington Post would like to offer co-op coverage as an option to its workers, it can’t. The co-ops are not allowed to contract with large employers, which is to say, they can’t compete with private insurers in the largest market, and they can’t get the purchasing power that would come from a serious foothold among corporate customers.

Not only is their size restricted, so too is what they can do with their size. The co-ops can band together to increase their purchasing power, but they can’t set national payment rates for their members, a la Medicare. As I understand it, they have to bargain with each provider and drug manufacturer and hospital and so forth separately, meaning they’re denied one of the main advantages of size. The insurance industry is, in other words, being protected from not just public competition, but co-op competition.

I’ve never been big on co-ops, but I realize it’s at least possible to structure them in a way that could provide a benefit and credible competition.

Baucus’ vision seems to be the wrong approach to a weak idea.