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The Baucus Bill: The Neutered Co-Ops

The co-ops have never been a satisfying alternative to the public option. But the version in Baucus's bill isn't even a satisfying alternative to the co-op option. It's a neutered version of the co-op idea, which was in turn a neutered version of the public option.

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.

By Ezra Klein  |  September 16, 2009; 2:54 PM ET
Categories:  Health Reform  
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Have you finally decided it's not a good bill?

Posted by: fuse | September 16, 2009 3:03 PM | Report abuse

Face it. the entire bill is bad policy. and to be honest the alternative bills (though multiple orders of magnitude better) aren't much better. this is what happens when policy is a mere afterthought to politics and corporations are considered (by our political classes) more important than citizens. it is no coincidence that in a bill which imposes as a new condition on citizenship that everyone must give health insurance companies money that word citizen is replaced by consumer. It is clear that our political class believes as George W. said after 9/11 that our highest duty and obligation as citizens is to spend money.

these bills do pose an interesting philosophical question. forget about whether life begins at conception or birth the new question is whether life begins before or after private insurance coverage.

Posted by: PindarPushkin | September 16, 2009 3:10 PM | Report abuse

"It's a neutered version of the co-op idea, which was in turn a neutered version of the public option."

Which was a neutered version of single-payer in the first place.

Posted by: adamiani | September 16, 2009 3:10 PM | Report abuse

I agree. What the crapping hell good does it do for Massachusetts' negotiating stance against Partners by banding together w/Connecticut?

There will be good savings in labs and maybe DME, dental if they can scrape together coverage for it, but the big ticket providers are local.

Unless all 50 states' coops link together on day one and create a PPO product they all very well might be dead in the water.

Also, though I think the notion of 'Accountable Care Organizations' is interesting, remember that those basically meet the verbatim definition of FTC's "clinical integration" meaning they can negotiate prices together. Good for them, yeah, but even worse for weakling coops.

Posted by: ThomasEN | September 16, 2009 3:12 PM | Report abuse

It looks like Ezra has finally decided to stop being a mouthpiece for the absolutely horendous watered-down 'compromise' piece of junk from Baucus and Conrad. I hope the progressive senators on the Finance committee band together and fight for a robust public option and greater subsidies for the poor.

Baucus was delaying his bill to fill it up with insurance industry goodies for his lobbyist pals.

Posted by: jasonr3 | September 16, 2009 3:16 PM | Report abuse

I've touched on this before, but size is really the issue, not the legislated rules for bargaining.

Medicare has to "bargain" with every individual provider too. It just has a very tough bargain-- here are the rates, take it or leave it, and by the way, we've got the highest market share in your area. But there are plenty of providers that decide to not participate in Medicare. Setting "national rates" without the associated market share/power is a recipe for failure, making it a meaningless provision. Medicare has the lowest rates in town because they have the highest market share, the fact that they have a streamlined rate structure saves on the administrative costs of negotiating with multiple providers, but its really no different than any other big-game insurer in town.

Size is the key issue. But even here, its more of a local, rather than national story. Having millions of people coupled together in a national co-op doesn't really matter to a physician in Pittsburgh. He/she will decide to participate based on the local share of patients that a co-op has. For other items, such as drugs/supplies/etc., a national co-op could make a difference here. But even in this case, joining existing purchasing consortiums, such as PBMs, will likely have similar market power as a 19 million person national co-op.

In other words, there really isn't a meaningful difference between state and national co-ops. The bargaining will still happen a the local level. (That said, barring local companies, e.g. large employers, from the coops will put them at a disadvantage. That doesn't sound like a good idea.)

Posted by: wisewon | September 16, 2009 3:41 PM | Report abuse

In short, the Baucus scheme contrives to set artificial hurdles that will increase costs. So Baucus intends to negate exactly the advantage that the public option would clearly have and the co-op plan -- according to propaganda -- could have.

Posted by: SanHuw | September 16, 2009 3:46 PM | Report abuse

The bill stinks! It's O.K. to admit it.

Posted by: obrier2 | September 16, 2009 3:49 PM | Report abuse

Wow, that's pretty stupid. Of course, none of these options would reduce the cost of health care anyway.

We need to draw a strict line between insurance plans and pre-paid health care plans. Get the so-called insurance companies out of the pre-paid care business, and create real insurance.

Posted by: staticvars | September 16, 2009 4:03 PM | Report abuse

One day people will learn that government/corporate enmeshment always turns out like this.

Posted by: mdfarmer | September 16, 2009 4:08 PM | Report abuse

"It's a neutered version of the co-op idea, which was in turn a neutered version of the public option."

...which in turn was a neutered alternative for single payer.

And what did we get for all of this neutering?

Posted by: slantedview | September 16, 2009 4:08 PM | Report abuse

An interesting observation is that not allowing insurance companies to compete with companies outside their state seemed OK with Ezra et al before reform became the issue.
Currently, there are thirteen companies in CA and you must buy from one of them. They do not complete with the 1,400 or so other companies nationwide.
Can you imagine being forced to buy your automobile only from a company that manufactures cars in your state?

So, *NOW*, the watchword is "competition". Where the hell have you been for the last few decades??!

Posted by: WrongfulDeath | September 16, 2009 4:09 PM | Report abuse

Switching from the policy to the politics: isn't it time to stop treating the Baucus Pocus as the working draft of the final healthcare reform bill, in which all amendments, other Senate committee bills, and the House bill are somehow revisions?

It's time to start going back to HELP and the House committee work and treat one of those drafts as the primary working copy, with Baucus as a subordinate draft.

Posted by: pseudonymousinnc | September 16, 2009 4:11 PM | Report abuse

pseudo is right. But we should note that can actually start within Finance itself. Rockefeller made it clear yesterday that he wants this process back within regular order (as in majority rules) and will not be bypassed.

The math is clear: 13 Dems and 10 Repubs on Finance.

BaucusCare math: 3 to 4 R's plus 9 or 8 D's equals 12. Under his original Gang of Seven he had potentially 4 R's: Grassley, Hatch, Snowe and Enzi. When Hatch dropped out of talks the needle's eye narrowed to 3 R's plus 9 D's. In this equation Max could potentially lose Rockefeller, Kerry, Wyden, and Schumer along with seven conservative R's and still force the bill through Commitee. Losing Enzi meant needing to get Wyden or Schumer to go along, losing Grassley meant needing both, and the loss of Snowe means he needs everybody but Rockefeller.

Sidelining Rockefeller who is after all the Chair of the Finance Sub-Committee on Health, on the hopes of getting a combination of 12 centrists was always kind of risky and depended on CW regarding Baucus as the essential man. Well I think that facade cracked today, we got a bill that smacks median income families hard and still by CBO's just released score leaves 25 million American residents uninsured, with only a minority of those being illegals.

Baucus just ran by his 'sell by' date.

Posted by: BruceWebb | September 16, 2009 5:19 PM | Report abuse

But if the Exchange is going to include all businesses by 2022, as you noted in a previous post, won't large employers eventually be able to contract with the co-ops?

Posted by: HBurton1 | September 16, 2009 7:07 PM | Report abuse

But if the Exchange is going to include all businesses by 2022, as you noted in a previous post, won't large employers eventually be able to contract with the co-ops?

Posted by: HBurton1 | September 16, 2009 7:09 PM | Report abuse

Ezra, when will you finally come around to the realization that a public option is ESSENTIAL for any meaningful health care reform?

It seems like you are getting closer, but are we there yet?

Baucus (and many in the MSM) like to talk about how this is a bill that could get enough votes to pass the Senate. They are wrong. Rockefeller won't vote for it. Feingold won't vote for it. Franken probably won't vote for it. Harkin won't vote for it. Republicans won't vote for it.

So where are the votes?

Maybe the whole point of this exercise was to clearly demonstrate that the Republicans want no part of any reasonable process, so they can be left out. Where they belong.

Posted by: mjshep | September 16, 2009 11:05 PM | Report abuse

The co-ops idea may have some political purpose, but why we're discussing it as a serious policy proposal is beyond me.

Posted by: bmull | September 17, 2009 4:34 AM | Report abuse

Let's be clear, here.

Blaming Republicans for any of this is simply bizzare. Democrats hold all the levers of government. They control everything.

The problem is not Republicans. It's their own party that's the problem.

Look in the mirror.

Posted by: WrongfulDeath | September 17, 2009 10:42 AM | Report abuse

If I understand the Baucus Bill from my reading of it, I agree with you, Ezra, that it has very serious problems, serious enough that the bill can not be allowed to proceed as it is. The insurance works out to be unaffordable for many middle class people.

The extreme problem comes from the combination of:

a) 5:1 ratios being allowed for age (compare MA currently allowing only 2:1)

b)Credit holding insurance premium at 13% of what is basically adjusted gross completely stops at 400% of poverty line

c)Stop losses are pretty high -- for a couple above 400% of poverty around $12,000/year.

Working this out, approximately, I get a 62 year old couple just over 400% of poverty, that is, $58,000 of adjusted gross, paying perhaps $27,000 for a lower priced policy (income just a few hundred dollars too high for any tax credit), having to handle also potentially $12,000 additional in stop-loss, and pay income taxes as well.

Further, if the couple held their income down to 399% of poverty instead of 401% of poverty, the credit would kick in, the insurance would drop from $27,000 to $8,000. This is extraordinarily bad engineering, and is making work not pay, and it is such a strong force in this case that even people of good character would stop working.

(You can check my calculations on this page if you want: )

At any rate, the minds that are good enough to fix this bill need to step forward right now.

--Norm Spier (A statistician)

Posted by: normspier | September 17, 2009 3:55 PM | Report abuse

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