Green Room

Co-Opting the Government “Option”

posted at 5:29 am on August 17, 2009 by

It’s a signal victory, though more symbolic than substantive: President Barack H. Obama has reportedly backed down from his government “option” plan for ObamaCare. But what is already being flogged in its place, health-insurance “cooperatives,” may end up nearly as bad.

The key question is whether they will be subsidized by the government (federal, state, or local) — either directly by continual funding or by the Amtrak mechanism of repeated bailouts every time they fall short of break-even. If they end up government funded, they’ll still have the government-option effect of forcibly shifting employees from private to co-op:

Bowing to Republican pressure and an uneasy public, President Barack Obama’s administration signaled Sunday it is ready to abandon the idea of giving Americans the option of government-run insurance as part of a new health care system.

Facing mounting opposition to the overhaul, administration officials left open the chance for a compromise with Republicans that would include health insurance cooperatives instead of a government-run plan….

Under a proposal by Sen. Kent Conrad, D-N.D., consumer-owned nonprofit cooperatives would sell insurance in competition with private industry, not unlike the way electric and agriculture co-ops operate, especially in rural states such as his own.

With $3 billion to $4 billion in initial support from the government, the co-ops would operate under a national structure with state affiliates, but independent of the government. They would be required to maintain the type of financial reserves that private companies are required to keep in case of unexpectedly high claims.

The problem is structurally similar to the government option: If co-ops are allowed by law to operate at a loss or subsidized whenever they lose money, they can always undercut any private health-care plan; thus, employers will feel irresistable pressure to force all employees into the co-op plan… and in effect, you have a mandatory government “option” by proxy.

As a thought experiment, take the very example AP cites above: Imagine if food co-ops were allowed to operate at a loss and were continually replentished by tax money; this would give them cover to sell food at such artificially low prices that the free market could never compete. Eventually, private grocers would be driven out of business, and the government — operating through its stalking-horse co-ops — would be the sole provider of provender… a situation fraught with peril: Whenever government gains a monopoly, it introduces political considerations into the decision of who is allowed access to that product or service, whether food or health care.

However, if the health-insurance co-ops are not subsidized, and especially if mismanagers are allowed to go bankrupt and disappear, that would be a huge improvement in the bill. That change would likely prevent the wholesale destruction of private insurance that the government “option” would otherwise work.

That said, it bodes ill that these co-ops are already set to receive subsidies right at the very beginning, with “$3 billion to $4 billion in initial support from the government.” Alas, I suspect this is non-negotiable by the Left; but if it’s limited to just that one time — if! — the market distortion would not be insurmountable.

Under the government option, continual subsidy is guaranteed, because the federal government cannot “go out of business.” It remains to be seen if the Democrats are serious about allowing a private, market-based insurance industry to flourish, or whether they see co-ops as just a ruse to trick the notoriously gullible (and frequently craven) Republicans into supporting a stinkweed by any other name. Therefore, this too bodes ill:

“I think there will be a competitor to private insurers,” [Health and Human Services Secretary Kathleen] Sebelius said. “That’s really the essential part, is you don’t turn over the whole new marketplace to private insurance companies and trust them to do the right thing.”

Sebelius, a Democrat and the former governor of Kansas, is not even one of the more rabid members of the Obama administration; yet her attitude clearly seems to be that government control of health care is the default position, whence she reluctantly allows some private participation — if we really have to. After all, we certainly can’t turn the free market over to private companies! How can we trust them to “do the right thing” — that is, to kow-tow to the same political considerations that drive the federal government? (For example, how could we trust private insurance companies to mandate coverage for late-term abortions, “gender reassignment surgery,” drug-addiction treatment, Octomom fertility treatment, and of course, copious donations to Democratic candidates?)

This is 180-degrees (or π radians) off what we need; the default should always be a pure free market, with only occasional and slight deviations when absolutely necessary… for example, to avoid violating the First Rule of Health-Policy Political Reality: “If voters have to step over dead bodies to get to the polling place, it affects their vote.”

What we desperately need now is for GOP senators to show enough spine to insist, as a deal-breaker, that the co-ops be real not-for-profit corporations; that they receive no subsidies, directly or indirectly, from the government (after startup); and most important, no government protection from bankrupcy: If a health-insurance co-op cannot stay afloat — we let it sink. Outstanding claims can be handled as they would in the case of a for-profit insurance company that goes out of business.

Co-ops already enjoy the heavy advantage of not having to show a profit; the way that private companies compete is by offering a wider range of plans, so that the co-op becomes the insurer of last resort… not the insurer of first resort. If they are turned into de facto conduits for full federal funding, they will be every bit as bad as the government option.

In fact, they may even be worse; the co-ops will have the forged “nihil obstat” of the free market. When things deteriorate rather than improve, Capitalism will be blamed — leading to anti-market hysteria and even more repressive statism.

We already have a model for that vicious circle: Massive government intervention into the airline, telephone, and energy production industries, sailing under the false flag of “deregulation,” usually fails spectacularly; when it does, that failure is invariably used as ammunition for a massive government clampdown to “fix” the problem that government itself created.

We dare not let such a spasm of statism drive us into the loving tentacles of government-controlled health care.

Cross-posted on Big Lizards

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I smell a rat (or is it a liberal). Give me 4 billion dollars in capital for my business and I guarantee my competitors will be gone in 5 years. Thanks to some conservatives with guts, like you Dafydd, the folks on the radio, a few congresscritters, the “Mob”, and Sarah Palin we’ve pushed the Dems and ObieOne back on their heals. We can not let up. Their camel’s nose is still trying to get under the tent of liberty. Beware of Rick Moran type conservatives.

cross posted at big lizards blog

cdor on August 17, 2009 at 8:58 PM


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