The struggle for universal, affordable health care has come down to the realization that there is a critical need for public accountability, rather than just market accountability, for health care. Sen. Kent Conrad, however, threw a wrench into the gears with his proposal for a private, co-operative based, health care option that would compete at regional levels with private insurers.
The important details of Conrad's plan are unclear or, more likely, undecided, but commentators say he appears to be looking at the models provided by two large, non-profit HMO's, Minnesota's Health Partners or Washington's Group Health. If so, and if that is all there is to his plan, Gov. Dean is right: co-ops are not an acceptable compromise.
However, there are ways that co-operatives can work in health care, and there are successful policy models in American governance already in place:
The Federal Farm Credit system is such a model, despite some misleading and mistaken attempts to discredit parts of it by uncritically using the right's talking points in this diary, which was regrettably cited by nycevein an otherwise right-on piece.
After the turn of the last century, importing parts of European model ( the German Landesbanksystem), Congress established, in 1916, the first Government Sponsored Enterprises (GSEs) in response to the financial crises of that period which had caused a wave a bankruptcies in rural areas, resulting in starvation and other forms of severe deprivation that afflicted American farmers and their employees. At that time, a large part of the US population still dwelt in rural, farm-based communities, so the crisis was an acute human disaster in addition to an economic one. It was comparable in scope and scale to the hardships faced by those of us suffering from illness today without being adequately assured that we can afford the health care that we need to survive. And the cause, like the health care crisis today, was also due to an over-reliance on markets to provide for people's urgent survival needs.
It just so happens that when markets are left unfettered, resources get diverted to those endeavors that provide the highest profits and not necessarily to those where people most need them. In farming, banks could (and still usually can) find lower-risk, higher-return lending opportunities outside of agriculture, making terms of loans too short and interest rates too high for the volatile, low-margin conditions of American farming. Likewise in health care, doctors and other providers are realistically limited by the number of patients they can possibly treat in a day, so they cannot achieve increases in income comparable to other sectors such as high tech by increasing their productivity. They can only keep their incomes high by increasing the either intensity of care (even when unnecessary), quality of care, or by raising their prices through monopolistic practice, and American medicine has historically engaged in all three. The result is that resources are diverted from the care many people actually need to profits in the form of higher incomes for providers and insurers -- and public intervention is necessary to make sure that health care markets actually work for people and not the other way around.
Addressing the resource diversion problem in rural America in 1916, the highly controversial Federal Farm Loan Act established a system of 12 privately owned, non-profit cooperative Farm Credit Banks (which has since consolidated to five), which would be owned, managed, and governed by their borrowers. (It was a compromise at the time to the idea of establishing a more directly government-managed banking system such as were the German Landesbanks.) The American banking industry reacted fiercely, and the first attempt to establish the system failed in 1914 when President Woodrow Wilson refused to support such a controversial public interference with the private money markets so soon after the first such public interference occurred when the Federal Reserve System was established in 1911. A Supreme Court ruling was required to defend the eventual 1916 law that Wilson did sign, but even today the American Bankers Association lobbies intensively in every new farm legislation event to dissolve or privatize the system completely. (They've been oddly quiet during the current crisis because the farm credit system has performed so well compared to private banks.)
Being established by Congress instead of by private entrepreneurs has meant that the cooperative banks enjoyed lower costs of obtaining capital and financing than other private rural lending entities because of the implicit promise that the US Congress would bail out the GSEs or provide them with capital if credit markets failed to do so. This implicit support is the critical element that makes cooperative farm credit so competitive and successful at keeping rates low and terms generous for farmers. Wall Street rewards that implicit guarantee with lower costs of obtaining capital to expand, and that is exactly the kind of guarantee that is required of any public option -- be it privately- or government- managed -- in order to allow it to capture significant market share from private health insurance as well. Without that implicit political guarantee to Wall Street, no system, public or private, can expect to compete with
The Farm Credit System is privately owned and managed, but its GSE status gives it public accountability in a way that its competitors, to their constant chagrin, do not have. Because Congress has a vested interest in its success, it also established the Farm Credit Agency to look after and regulate the system and that provides a vested interest for the systems' success within the federal bureaucracy as well. Congress's credibility to back up its implicit commitment to the goals of Farm Credit System has been tested and passed several times since 1916, most recently during the 1980's, and each time public accountability for the system met the test, just as it did in averting the bankruptcy of the two large housing GSE's, Freddie Mac, and Fannie Mae. What makes a system a viable public option is that the credibility to make it work is politically embedded within its structure. Size, funding, and other elements all follow from credibility provided by public accountability.
What about the claim that a public option would drive private providers out of business? Well, that hasn't happened in agricultural lending. (nor has it happened in many, if any, other areas where the government participates in markets as well as regulates them.) The Federal Farm Credit System, which was started with only $6 million dollars in federal capital in 1916, did quickly increase its market share for agricultural lending, and it prompted lawsuits from private banking trusts which sought, unsuccessfully, to reverse the Farm Credit Act. (It's not the start-up capital but the ability to access bond markets for additional financing that allows GSEs to compete on such favorable terms with private sector enterprises. The same would be true of a public option for health insurance.) But the share of agricultural lending provided by the Farm Credit GSEs remains consistently between 30%-40% of total agricultural lending. It's a huge share of the market, but it doesn't result in a monopoly either. This means two things relevant to the health care discussion:
One, it means that there is no basis to the argument that a public option will drive private health insurance out of business and result in a public monopoly for health insurance (I'm not convinced that would be a bad thing even if it did happen, but it's not going to happen regardless of what kind of public option we get in any form of the current legislation.)
Two, it means that a privately managed system of cooperatives can do the job of increasing health care coverage and pushing costs to consumers of health care down as effectively as a public option directly managed by the government. Another way to think about it is that indirect governance can work as well or better than direct governance as long as the ultimate lines of accountability go to the public and not to private markets.
There are a lot of skeptics such as Dr. Dean regarding cooperatives, and that skepticism is healthy. Just being non-profit or consumer owned and managed is not sufficient for successfully competing with the private health insurance quasi-monopolies, many of which are already non-profit and some of which are already cooperatives.
What makes the Federal Farm Credit system such a success is NOT that it is just consumer-owned and non-profit. Rather, what makes it a success is its GSE staus -- a publicly accountable enterprise, a business in which there is a political iron triangle dedicated to its success and committed to providing or guaranteeing implicitly if not explicitly, the low-cost resources necessary to compete with private providers of the same service. That means a public commitment to bail out the system of cooperatives when it fails (and it will at some time, like any system, public or private), and it also means being publicly accountable to the Congressionally established mission of the system as provided in law. For example, the Farm Credit the mission is to provide for low-priced, long term farm and rural development lending even when it is more profitable to lend in other areas. For health care the mission is ensure universal coverage to high quality care at prices that everyone can afford. If that doesn't happen with a GSE cooperative system, it becomes, automatically, a political problem on Congress's agenda, as it has several times in the history of the Farm Credit Administration.
A public option can be achieved through a system of government sponsored health care cooperatives established as GSEs while still being privately owned and managed. The critical elements of such a system include those argued by by Sen. Schumer (the first two) as well as two others that I believe are necessary based on the successful experience of the cooperative Farm Credit System:
- Health insurance cooperatives must be publicly accountable, even if privately owned and managed. (The Farm Credit Adminstration provides a good model of how public accountability can be achieved through a system of privately owned and managed entities.)
- The cooperative health insurance system must be large enough to force private insurers to lower prices or increase coverage to stay in business. (In other words, they have to be able to force the transfer excess profits from health care providers and insurers to consumers in the form of better care at lower prices, just like Farm Credit coops do in the agricultural lending market.)
- It must be able to compete with private health insurers on all health insurance coverage, including employer coverage, and not just small business or individual coverage.
- Such a system needs Government Sponsored Enterpise (GSE) status, like the farm credit system and the better known housing GSEs, Fannie Mae and Freddie Mac. This status both restricts the mission of private managers toward that established in law as well as politically commits Congress and the federal bureaucracy to delivering on the mission in a way that is responsive to constituents and beneficiaries and not just to the marketplace.
Cooperatives can be a viable public option for health care, but the best way to ensure that they are is by fighting for exactly what we want out of a government managed public option -- public accountability to guarantee that everyone has an affordable, high-quality option to existing insurance coverage for health care. Just as the Farm Credit System provides this kind of public accountability to ensure that farmers who need loans can get them in any market environment, a properly structured, privately managed, GSE system of health insurance coops can work as public option for health care too.