Co-Op Insurance Coverage: The New “Fannie Med”
“We’re going to have some type of public option—you can call it a co-op, call it whatever you want…”
— Senate Majority Leader Reid, quoted in The Washington Post, July 10, 2009
In recent days, policy-makers in the Senate have focused on the idea of health insurance co-operatives as an alternative variation to the government-run health plan supported by many Democrats. Recent press reports indicate that Senators are contemplating providing $6 billion in federal taxpayer dollars as “seed money” to finance the new plans. The Republican Conference has prepared the following questions to help determine whether the co-op proposal being considered would compete on a “level playing field” against existing plans, or would be blessed by the government with inherent biases. In a broad sense, the question surrounds whether the co-op will function as a truly independent entity, or whether the co-op could do for health care what Fannie Mae and Freddie Mac did for the housing market—dominate the marketplace based on implicit government subsidies until the federal government steps in with a bailout.
- Compliance With State Laws: Would a co-op have to comply with all relevant State laws that currently apply to health insurance plans, such as licensure and solvency standards? Would the co-op plan be subjected to the more than 2100 benefit mandates in every State that require carriers to treat ailments such as varicose veins and hair prostheses? Budget Committee Chairman Conrad’s proposal that a uniform national definition “could ease the ability of co-ops to operate in multiple States” may therefore appear to suggest government bias in favor of the co-op.
- Deemed Approval: Would a co-op have to go through the same rigorous process for approval by all 50 State insurance commissioners that existing carriers have to face—or would it be deemed “approved” by Congressional fiat? Chairman Conrad’s proposal that “each State would be required to have one qualifying co-op” would seem to fail this test—as a federal mandate that co-ops be established suggests that States ultimately would not be able to reject a co-op’s application.
- Ability for State Sanctions: Could a State insurance commissioner evict the co-op from the State due to consumer protection violations—or seize the co-op if it is dangerously underfunded? Again, would a requirement that co-ops must operate in each State therefore make the co-op essentially exempt from sanctions by that State?
- Provider Networks: Would the co-op form provider networks—and if so, how? Would the co-op be required to set prices through negotiation and at market rates, rather than through executive fiat? Would States be permitted to form their co-ops in such a manner as to exclude from other government programs providers who did not accept co-op coverage?
- Appeals and Lawsuits: What kind of appeals process would the co-op have for beneficiary complaints—and would it be subject to imposed penalties for consumer violations? Would individuals be able to file legal actions against the co-op, as they may against private insurance plans currently—and if so, who would pay damages awarded?
- Government Financial Backstops: Would the co-op have any government backing—explicit or implicit? Would capital markets provide lower interest rates for the co-op—as they did with Fannie Mae and Freddie Mac—due to an expectation of government aid in the event of liquidity difficulties?
- Possibility of Failure; Prohibition on Government Bailouts: Would a co-op be permitted to fail? Even if the government provided “seed funding” to finance the co-op’s establishment, would there be a statutory prohibition—coupled with a supermajority point-of-order in the Senate—on further funds being provided to the co-op plan?
- Difference from Existing Co-Op Plans: Perhaps most importantly, how would the new co-ops being proposed differ from existing co-ops in operation now? Association plans currently operate in many States—and while providing individuals with greater choice and flexibility of coverage options, they have not appreciably lowered the growth of health costs or insurance premiums. Since co-op supporters believe that their existence would have a marked effect on reducing health costs and premium growth, what advantage would the government-created co-op have that current associations do not?
While supporting the concept of additional market choices for consumers, some Members may question how exactly co-ops will improve competition in the current health insurance marketplace without relying on biases provided by States or the federal government. The prime ways a co-op could obtain “clout” over existing offerings—a national marketplace and lower provider reimbursement rates—both would involve government exercising its sovereign power in favor of a particular market competitor. Therefore, while welcoming discussions to provide choice of insurance plans, some Members may still agree with Congressional Budget Office Director Elmendorf, who previously testified that it would be “extremely difficult” to construct a “level playing field” between any government-backed insurance plan and private coverage offerings currently on the market.