Will Co-ops Become Fannie Med?

The latest twist in the health care reform debate is co-ops, a supposed compromise in place of a public health insurance option, but some opponents of the public option say co-ops are still bad medicine.

The talk of co-ops got louder after President Barack Obama and Health and Human Services Secretary Kathleen Sebelius said over the weekend that the public option was not necessary for health reform.

“The public option, whether we have it or we don't have it, is not the entirety of health care reform,” Obama said on Saturday in Colorado.

The next day, Sebelius echoed the point, saying the public plan “is not the essential element," during an interview on CNN's "State of the Union" show.

The administration has been backpedaling since the Democratic liberal wing took issue with those statements. By Tuesday, administration officials were pulling back the trial balloon.

“Here’s the bottom line: Absolutely nothing has changed,” Sebelius said on Tuesday.

But something is different. The administration put the public option on the table and left it there by saying it is still a good idea but did not say it is a requirement for reform. Next to it is another poker chip in the form of health co-ops, an idea promoted by Sen. Kent Conrad, D-N.D.

He has reportedly compared them to farming and other co-ops that have been around for 150 years. Some say that’s an attempt to ignite a warm glow of down-home recognition around the idea. But another, more apt, comparison would warm a few hearts also. They are basically mutual insurance companies. They are owned and, in some cases, even managed by the participants.

Although, saying “they” is a little bit of a stretch because only a few of them exist.

Edmund F. Haislmaier, Heritage Foundation senior research fellow in health policy, said the co-ops at first blush make sense in the health insurance landscape, where you have stockholder companies and nonprofits, but just a few mutual companies. But the problem is they would function more like the public option than Northwestern Mutual, Haislmaier said.

The government would set up the entities with public funding and bureaucratic control. Proponents say the co-ops would eventually be operated by and for the participants, but really, how often does government let go of a program? And who is ultimately responsible for the insurance companies’ solvency? Taxpayers.

“You end up with one of these enterprises with the taxpayers on the hook for the losses,” Haislmaier said. “These things start to look like Freddie Mac or Fannie Mae.”