The Trouble With Conrad's Compromise

Jacob S. Hacker is co-director of the Center for Health, Economic, and Family Security at U.C. Berkeley; a fellow at the New America Foundation; and the editor of "Health at Risk: America's Ailing Health System--and How to Heal It." He's also a regular guest contributor to The New Republic.

The argument for this new public plan is that it would have lower administrative costs; greater leverage to hold down prices; and the transparency, broad patient data, and incentives for long-term investment in health to improve the quality and efficiency of care. Along with new regulations, it would also be the primary check on a private insurance industry that has, for too long, neglected both quality and efficiency, focusing its creative energies instead on new ways to shift costs onto and screen out the sick.

The idea of public plan choice was part of all the leading Democratic candidates' health plans, Senator Max Baucus' November 2008 White Paper, and the vision of reform articulated earlier this year by key congressional Democrats. All with little attention outside health policy circles--until conservatives, health insurers, and some provider groups decided the public plan was public enemy number one. And so, the misinformation campaign began: A public plan available alongside private plans only for Americans without workplace insurance was suddenly described as a "government takeover" of medicine, the "road to rationing," and (that old standby) "socialized medicine." Republicans drew their lines in the sand, and Democrats started their favorite parlor game: compromising among themselves even before the real debate begins.

In most of the discussion of public plan choice, including my own writings, the plan has been as described as "Medicare-like"--a national plan roughly modeled after Medicare that would, however, be separate from Medicare and compete on a level playing field with private plans. That is still the leading model, and thoughtful Democrats have usefully fleshed it out (more on that shortly). But the last couple months has featured a proliferation of putative compromise alternatives to the public plan, from creating a bunch of state plans modeled after self-insured health plans for state workers, to chartering some kind of nonprofit (national or state) plan that would be not quite governmental and not quite private, to "triggering" the public plan only if the situation in American health care got too bad. (Aren't we there yet?) Some of these ideas had some of the elements of the original vision of a Medicare-like public plan, but none had substantial recommendations other that they were ostensibly more politically salable.

Which brings us to Senator Kent Conrad, Chairman of the Senate Budget Committee, who has announced with much fanfare that he has solved the public plan problem--er, "problem." His solution? Allow consumers, states, and anybody else so inclined to create cooperatives that would purchase health care for their members. Conrad has not offered much in the way of specifics on what the cooperatives would look like or how they would be chartered. Most important, he has offered no reason to think that the cooperatives he envisions could do any of the crucial things that a competing public plan must do.

An easy way to think of the public plan's functions is the three "B"s: We need a national public plan that is available on similar terms in all parts of the nation as a backup. This plan has to have the ability to improve the quality and efficiency of care to act as a benchmark for private insurance. And it has to be able to challenge provider consolidation that has driven up prices to serve as a cost-control backstop.

Cooperatives might be able to provide some backup in some parts of the nation, but they are not going to have the ability to be a cost-control backstop, much less a benchmark for private plans, because they are not going to have the reach or authority to implement innovative delivery and payment reforms. And so Conrad's idea appears to be yet another compromised compromise that cuts the heart out the idea of public plan choice on the alter of political expediency.

That's not to say that encouraging cooperatives would be bad policy. In fact, Conrad has resurrected an old health care idea that taps into Americans' strong belief in direct community control (what the political scientist James Morone has called "the democratic wish.") Cooperatives of various sorts have been discussed and sometimes created to provide health care in the past. After the Great Depression, the Farm Security Administration encouraged the development of health cooperatives--which at one point had about 600,000 members, mostly in rural areas. But the cooperatives crumbled in the face of physician resistance (including boycotts), the lack of financial wherewithal of the cooperatives themselves, and the eventual withdrawal of government support.

Even today's remnants of the cooperative movement don't provide the most inspiring of lessons. The only survivor of the 1940s experiment, Group Health Cooperative of Puget Sound, does continue to operate as a tightly managed health maintenance organization, paying doctors on a salaried basis. It is well regarded, and indeed, was found to be remarkably efficient by the RAND Corporation as part of a famous 1970s analysis of the effect of insurance cost-sharing. Unfortunately, it's now little different from other nonprofit HMOs, with around a half million members in Idaho and Washington State. By contrast, WellPoint--the nation's largest insurer and a major force behind the defeat of health care reform in another West Coast state, California--has more than 30 million members.

And that's the story of purchasing cooperatives writ large. They have been hard to establish or extend, and when they have been established, they've been under constant siege from doctors and insurers and eventually largely operated as private insurance plans or weak purchasing arrangements. It is hard to see how any sort of decentralized cooperative model could do what a public plan can do.

But what if the cooperatives were national? In an interview with Ezra Klein of the Washington Post, Conrad has suggested that a national cooperative could be created on behalf of consumers. This would be a distinct improvement over the decentralized approach, especially if Congress established the cooperative and provided federal startup funds. Health law expert Timothy Jost has argued that the only viable cooperative strategy would involve "a federal charter to license and regulate a national non-profit coop, with coop governance prescribed by Congress."

But a national cooperative would still fall so dramatically short of a public plan that it would only be attractive in addition to a national public plan, not as a substitute for it. Indeed, this point holds more generally. Given the need for countervailing power in the health care market, the federal government should encourage a range of consumer-oriented health plans and state-based public plan options, so long as there is also a national public plan capable of being a backup, benchmark, and backstop.

Conrad's proposal does have one virtue: It presses advocates to be clearer about what public plan choice should do. Moreover, it is reasonable to be concerned about whether a public plan will be overly politicized or compete on a playing field that is not truly level. But that is an argument for creating an independent governing body for the public plan and for making sure that the public plan competes on equal terms with the private plans--for example, by requiring it to abide by the same basic rules as private plans and ensuring that, outside of setup costs, it is self-sustaining (that is, funded by premiums and subsidies available to low- and middle-income enrollees in all plans, rather than general government revenues).

The saddest part of this is that Conrad's announcement has overshadowed a truly constructive contribution to the debate by his colleague on the Senate Finance Committee: Jay Rockefeller. Rockefeller knows a thing or two about health care, having played a leadership role on the issue for decades. And this week he put out a compelling vision of public plan choice with the evocative title of the "Consumers Health care Act." Rockefeller's public plan would be called the "Consumer Choice Health Plan," and it would be a self-sustaining national public plan that would have to be abide by the same rules as private insurance plans and be run by the federal government separately from the new insurance pool that would oversee the competition among public and private plans. As the press release that accompanied the plan puts it: "By bringing a competitive public plan option to the table, private insurance companies will be driven to provide Americans with better value for their health care at a better price, in contrast to the current private insurance framework, which is focused on avoiding risk and increasing their profits."

Rockefeller also calls for creating an a nonprofit, consumer-driven organization to evaluate and give ratings to all health insurance products offered through the new insurance pool. Now that is a cooperative-sounding idea that might really work.

The attractions of Rockefeller's consumerist proposal make all the more transparent that there's no substantive case for Conrad's cooperative idea as an alternative to a public plan. We can design a good national public plan focused on patients, not profits, that could be up and running quickly. But is there a political case for Conrad co-op cop-out?

Conrad says that abandoning public plan choice is necessary because there are few wavering Democrats in the Senate who won't support it. If you have been following this debate, you are probably wondering why that is so consequential, since leading Democrats have suggested they could pass health care reform through the budget reconciliation process, which means they would need to get only a majority of Senate votes rather than the sixty needed to stop a filibuster. (Currently, the Democrats have fifty-nine votes, but most expect they will have sixty when the Minnesota election imbroglio is resolved.) But Conrad has consistently indicated that he does not think the reconciliation process is viable, notwithstanding his pledge to the White House to support its use if necessary. So he is saying that an anemic, almost certainly unrealistic proposal is what has to fill the check box on the Democrats' wish list next to "public plan."

But is Conrad right about the politics? A reform proposal that doesn't have a public plan is bound to cost more (or do less), since a public plan can save money--and save money in ways that the Congressional Budget Office will score. Get rid of the plan, and reform's overall price tag goes up, making it harder to pass. And if reform without a public plan were to pass, it would simply not work as well, or perhaps at all. It would be more likely to run into problems because budget expenditures turn out to be higher, or implementation problems when private insurance doesn't live up to its promises. That could sink reform before it even gets underway. In other words, maybe there's a political risk to including a public plan. But there's also a big political--and policy--risk to excluding it.

Strategically, Conrad's approach is more like capitulation than compromise. Reconciliation or no reconciliation, the right political path for achieving reform doesn't run through a minefield of endless preemptive concessions. When President Bush successfully enacted tax cuts in 2001 (through the reconciliation process, it should be noted), the question was simple: tax cuts, yea or nay? Many Democrats eventually signed on, not because they liked what Bush was peddling, but because they didn't want to be against tax cuts. And tax cuts mostly for the rich weren't all that popular. By contrast, there's little question about the popularity of bold action on health care.

Before the year is out, Republicans (and some Democrats) need to be asked: health care reform, yea or nay? And the reform package they're asked to vote up or down had better be good--which means, among other things, contain a true public plan--because there will not be another bite at this political apple for a very long time.

By Jacob Hacker
Reprinted with permission from The New Republic