Co-ops a federal-subsidy trough

posted at 12:17 pm on August 27, 2009 by Ed Morrissey
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With the public plan in ObamaCare attracting enough heat to melt steel girders, some moderates in the Senate have proposed replacing it with health insurance co-operatives.  The idea dates back several decades and was instrumental in FDR’s program of modernizing energy distribution in rural areas, and Kent Conrad (D-ND) says that example should light the way for an overhaul of the health-care system as well.  However, as the Washington Post reports, the track record of those co-operatives hardly gives confidence that they’ll work as intended or prevent government control of health care as a result:

Sen. Kent Conrad (D-N.D.), a pivotal lawmaker in the health-care debate, wants to deliver coverage to the uninsured by starting up new cooperatives modeled on rural electric cooperatives that were founded during the Great Depression.

But rural electric cooperatives have a mixed track record, experts say. They brought electricity to millions of rural Americans who lacked it in the 1930s and today serve about 14 percent of Americans. But after 75 years, the rural electric cooperatives still rely heavily on federal credit subsidies, have weak balance sheets and, some studies suggest, operate less efficiently than privately-owned utilities.

Over the past three years, some rural electric cooperatives have also come under criticism for excessive payments to executives and for pushing forward with new coal-fired power plants at a time when many people concerned with climate change want to slow down or halt such plants. Yet they remain politically powerful through the National Rural Electric Cooperative Association.

Perhaps a better explanation of the problem comes from Ken Glozer, a former OMB official, who gets this just about right:

“A co-op by definition has several major advantages over private tax-paying corporations,” said Ken Glozer, a former Office of Management and Budget official and president of a consulting firm called OMB Professionals. “They don’t pay taxes, they borrow all their money from the U.S. government because they because can’t raise capital, and they are political as hell because they depend on the government. Over time they will seek and get untold favors that a private company won’t be able to get.”

Glozer added that cooperatives are “quasi-federal agencies.”

That certainly sounds promising, doesn’t it?  What’s the best option for replacing a health-care system that works for the vast majority of Americans?  A series of “quasi-federal agencies” that are “political as hell” and depend entirely on Uncle Sam for their existence.  It’s the public plan by proxy.

What’s more, the model doesn’t apply.  As former CBO director Robert Reischauer explains, FDR used co-ops because he couldn’t entice the private market to build electrical infrastructure in rural areas.  Co-ops made sense at the time for that limited application.  ObamaCare doesn’t plan on providing health care to rural areas alone, however; it upends the entire system and forces it into government-run “exchanges” for everyone, regardless of where they live and what access they already have to health insurance and care.

Even if the plan did apply, the notion that it negates government control is ludicrous.  One of the idea’s backers, Rep. Jim Cooper (D-TN), wants to increase government control over rural energy co-ops.  He called them “too big for their britches” and indistinguishable from for-profit firms. Cooper means that in a bad way, in case you’re wondering, but seems happy enough with the results that he thinks the model would be terrific for health insurance.

The big secret with co-ops, though, is that they do not require the federal government to create them.  People can band together to form their own co-ops, assuming they can put together the requisite capital.  Several states, including Minnesota, have large co-ops providing coverage to hundreds of thousands of members.  Congress doesn’t need to create federal co-ops or subsidize state co-ops, and especially don’t need to create them to crowd out insurers — which is what will happen when federal subsidies allow co-ops to unfairly compete against private-sector insurers in the marketplace.

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