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There are hints that the Obama administration and Democratic congressional leadership might be willing to negotiate on the inclusion of a government health insurer as part of health-care reform. The most likely alternative proposal, which has been discussed by the Senate Finance Committee, is to establish some system of consumer cooperatives or “co-ops.”
While details are sketchy, the basic idea is to subsidize the creation of nonprofit health insurers on a state or regional basis. These supposedly would be run independent of the government and compete with traditional private health-insurance plans.
These government-authorized co-ops would serve no useful purpose. And they would risk the same adverse consequences as a public plan.
Democrats’ health insurance proposals already require private insurers to accept all applicants with no pre-existing condition exclusions, at premium rates that do not reflect health status and vary only within a narrow range based on age. These changes guarantee people access to health insurance at rates that would not price the ill or near-elderly out of the market–without creating government-authorized co-ops.
Democrats’ proposals expand eligibility for Medicaid and provide significant premium subsidies to buyers with incomes up to 300% or even 400% of the poverty level. These provisions would make insurance substantially more affordable for people with low-to-moderate income–without creating government-authorized co-ops.
Government-authorized co-ops also are not necessary to provide consumers with nonprofit alternatives. Nonprofit mutual insurance companies, most notably many Blue Cross and Blue Shield plans, already offer health insurance in many states. They are dominant players in some states.
Absent taxpayer subsidies or special rules, co-ops would not have any inherent advantage over private health insurers in establishing provider networks, negotiating with providers, and monitoring health-care utilization and fraud. Proposed co-ops instead would require billions of dollars of “start-up” subsidies.
More important, the creation of government-authorized co-ops would entail significant risk of ongoing subsidies by taxpayers (if not by private health-insurance buyers), of substantial private insurance crowd-out, and of eventual conversion to a government-run plan. Like a proposed public plan, government-authorized co-ops would be backed implicitly if not explicitly by taxpayers.
They would not have to hold the amounts of capital that private health insurers hold to back their promises. Government-authorized co-ops would almost certainly not have to pay income or premium taxes that private for-profit and nonprofit insurers must pay.
Although co-ops might initially be required to negotiate their own reimbursement rates with hospitals and doctors, substantial pressure would arise over time for centralized negotiations, with eventual benchmarking off Medicare reimbursement rates.
Compared with a public plan, government-authorized co-ops could simply be a slower road to government health care. The potential benefits are nil; the potential costs are large.
Scott E. Harrington is an adjunct scholar at AEI.
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