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Compromise Co-Op Proposal Won't Lower Costs, Government Study Showed

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The health care reform compromise that centrist Democrats and several Republicans have indicated they'd support has shown an inability to effectively lower premiums for consumers, a newly resurfaced government study shows.

In recent days, a slew of lawmakers, notably Sens. Kent Conrad (D-N.D.) and Richard Shelby (R-Ala.), have begun a renewed push to establish health care insurance cooperatives as an alternative to a publicly run insurance plan.

But there's a study at hand that undercuts the argument that co-ops would drastically alter the health insurance market.

The U.S. General Accounting Office produced a report on cooperatives in March 2000 that was mostly sour on the idea. Using five different co-ops as examples, the study concluded that on the key function -- lowering the cost of insurance -- these non-profit insurance pools came up well short.

"The cooperatives' potential to reduce overall premiums is limited because (1) they lack sufficient leverage as a result of their limited market share; (2) the cooperatives have not been able to produce administrative cost savings for insurers; or (3) their state laws and regulations already restrict to differing degrees the amount insurers can vary the premiums charged different groups purchasing the same health plan."

Part of the problem was availability. While cooperatives sought to provide more choice of insurance to participants, oftentimes they failed to get consumers a broader range of options. "Not all plans are available in all areas served by each cooperative, and individual employers using some cooperatives may limit the choice of plans their employees can select," the study concluded.

And without a large number of participants, co-ops essentially were subject to the whims of the insurance market, unable to use market influence to get consumers better deals on coverage. "None of the purchasing cooperatives we reviewed had a large enough market share to create bargaining leverage and therefore had a limited ability to significantly increase the percentage of small employers offering coverage in their state," the study found.

In fact, even though these co-ops were able to simplify some of the administrative functions of health insurance, the GAO concluded that they were unable to effectively lower administrative costs. "[W]hile the cooperatives tried to obtain premium reductions by assuming some of the administrative responsibilities of insurers, the anticipated administrative savings either never materialized or were not valued by insurers," the study concluded.

The GAO, it is important to note, was basing its study on "purchasing co-ops," which were structured to give a pool of insurance options for small employers (those that had a staff of between two and 50). It isn't entirely clear whether current defenders of health care co-operatives, specifically Conrad, would structure their proposal along these lines. But as templates for studying the proposal go, the GAO study is a reasonable one. As The Walker Report, a health-care related blog, noted, "Conrad has repeatedly refused to provide any concrete details for his co-ops idea" and "the five purchasing co-ops that the GAO investigated work in a manner very similar to the state based health insurance exchanges that are likely to be a part of health care reform."

Nevertheless, co-ops appear to be gaining steam as a political alternative to a public option. On Sunday, Conrad told Fox News Sunday that a government-run plan lacked the support in the Senate to get past a Republican filibuster. The same hurdle would not, on the surface, appear to face co-ops. Both Shelby and Sen. Chuck Grassley, (R-Iowa), have indicated they'd support Conrad's proposal. The Obama administration, too, has sent out recent trial balloons that it would move away from the public option in favor of co-ops.

But the possibility does remain that progressives would end up opposing such a bill. Former DNC Chair Howard Dean, in an interview with the Huffington Post last week, called the public option a key element in the health care overhaul. Anything less would not be reform at all, he said. He also suggested that there would be electoral consequences for any Democrat who thought otherwise.

"I do think there will be primaries as the result of all this, if the bill doesn't pass with a public option," Dean said.

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