The bipartisan Senate negotiators are leaning toward proposing a health-care Fannie Mae

Fannie Med. WSJ Editorial
The bipartisan Senate negotiators are leaning toward proposing a health-care Fannie Mae.
The Wall Street Journal, p A16, Jul 30, 2009

The details of the Senate Finance Committee’s hush-hush health talks aren’t fully known, but leaks suggest that one all-but-certain highlight will be new federally created health “cooperatives” to compete against private insurers. The onus is on Republican negotiators Chuck Grassley and Mike Enzi to explain why this isn’t merely the House “public option” in a better suit.

North Dakota Democrat Kent Conrad floated the co-op concept last month, to attract Republicans who oppose President Obama’s state-run plan. According to Mr. Conrad, these nonprofits—modeled on local electricity or rural farm co-ops—fulfill the liberal goal of competing against private insurers, yet avoid “government control,” since they will be member-owned. Presto, a Beltway splitting of the political baby.

And in theory, health-care co-ops needn’t be destructive. Blue Cross and Blue Shield began as nonprofit health insurers, and some state Blues still are. Organizations like the Group Health Cooperative of Puget Sound are consumer-owned and compete with private plans.

But the Senate is talking about government-sponsored co-ops, and that means multiple devils are in the details. Mr. Conrad confirmed this week that the current plan is to have the feds provide $6 billion in start-up cash, then appoint an “interim” national board to set policies for a network of state or regional co-ops. Mr. Conrad said this new network could attract 12 million people, making it the third-largest health insurer in the country.

Here’s where the trouble starts. At least with the public option, Washington acknowledges that taxpayers are subsidizing public plans. With co-ops, the government role is more subtle, if nearly as corrosive. Start with Mr. Conrad’s $6 billion in “seed money,” which is more than the total annual revenue of all but 20 of the nation’s private plans. This would provide a lower cost of capital than private firms and an implicit claim on any other money the co-ops need. The feds may also exempt co-ops from the taxes that private insurers pay, which average about 1.2% of premiums. This would let co-ops offer lower prices and poach customers with government-subsidized premiums.

The Senators may also exempt co-ops from the state mandates that now drive up the cost of private policies. We’ve long wanted the feds to let individuals or groups (such as the National Federation of Independent Business) form risk pools and buy insurance across state lines free of these costly requirements. But liberals have killed attempts at such Association Health Plans, which suggests their goal in exempting these “government-sponsored health enterprises” from state mandates is merely to give them another pricing edge.

Mr. Conrad suggests the federal board overseeing this network would be temporary, meaning at some point government appointees would be replaced by elected private directors. Mr. Grassley is said to be resisting federal control, but even if he succeeds for now, neither he nor Mr. Conrad can bind a future Congress. When was the last time government supervision became less onerous over time, especially in health care?

All of which makes these co-ops sound a lot like a health-care Fannie Mae and Freddie Mac, which Congress created because there was supposedly no secondary mortgage market. The duo proceeded to use their government subsidy to dominate the market and drive out private competitors.

And all of this is before Congressional liberals get their hands on these co-ops. “We’re going to have some type of public option, call it ‘co-op,’ call it what you want,” Senate Majority Leader Harry Reid said earlier this month. New York’s Chuck Schumer wants $10 billion to seed a single, nationwide co-op that will be governed by a federal board and have the authority to impose price controls. At the very least, liberals will demand to load up co-ops with the minimum-coverage mandates they’ve already included in the House and rival Senate legislation—from maternity care to government-funded abortion.

Messrs. Grassley and Enzi and Maine’s Olympia Snowe are under great pressure to agree to a deal, as Democrats grow more desperate to get political cover for reform that is sinking fast in the polls. The co-op idea might have begun as a benign proposal, but it is likely to become a mini-me public option. Senate Republicans can best serve the cause of bipartisan reform and fiscal sanity by opposing any form of new government health care, and urging Mr. Baucus to turn to the Plan B of helping the uninsured with tax credits.