Has Kent Conrad Solved the Public Plan Problem? An Interview.

(Earlier today, Sen. Kent Conrad, the North Dakota Democrat who chairs the Senate Budget Committee, introduced a "potential compromise" on the public plan: A system of federally-chartered co-ops that could offer a non-profit alternative to the for-profit insurance industry. In this telling, the co-ops preserve the central feature of the public plan -- they're a competitor to the traditional insurance industry -- but are free from the baggage of government control.

I spoke to the Senator this evening about the co-op model, and he said a few things that surprised me. First, his search for an alternative was on behalf of the G-11 -- the key Senate powerbrokers on health care. Second, it proceeded from the premise that the public plan doesn't have the votes. All Republicans are opposed and, according to Conrad, "at least three Democrats." And third, he thinks reconciliation is basically out as a viable option for comprehensive health reform. A lightly edited transcript follows.)

Tell me a bit about your idea for chartering co-ops in the health insurance market.

Maybe it would be most useful to tell you how I got into this. The G-11 group, which is the members of the Senate, Republicans and Democrats, chairmen and ranking members of the key committees, who've been given the overall responsibility to coordinate health care reform in the Senate, asked me 10 days ago to come up with something to bridge the divide between those who are strong adherents to the public plan and those who are strongly opposed.

The co-op structure came to mind because it seems to fulfill at least some of the desires of both sides. In terms of those who want a public option because they hope to have a competitive delivery model able to take on the private insurance companies, a co-op model has attraction.

And for those against a public option because they fear government control, the co-op structure has some appeal because its not government control. It's membership control, and membership ownership.

Also the co-op model has proven very effective across many different models. Ocean Spray in the cranberry business, and Land of Lakes in the dairy business, and Puget Sound in the health care business.

How do you respond to someone who says, this is a terrific idea. More competition is always welcome. But why instead of a public option? Why not do it alongside and let a thousand coverage models bloom?

Votes. The problem is this. If you're in a 60 vote environment in the Senate -- and I believe we are, because I believe reconciliation simply won't work -- if you begin tallying up the votes, I believe that virtually all Republicans are against the public option and some democrats are. So how do you get to 60?

How many Democrats would you estimate are against a public option?

I don't know for certain, but I think at least three, and maybe more.

And why do you think that reconciliation won't work for health reform.

Reconciliation was never designed to write substantive legislation. It was designed solely for deficit reduction. The whole idea was you would change numbers, not policy. You would change numbers on the revenue side of the equation and the spending side of the equation.

And so, the way it works, under current rules, if you're in reconciliation, you have to be deficit neutral over five years. Under the budget resolution, health care can be deficit neutral under 10 years. That's a big difference.

Two, under reconciliation, you're subjected to the Byrd rule. The Byrd rule says that anything that doesn't cost money or save money, or that only costs money or saves money in a way that's incidental to the policy, is subject to strike. The result, for instance, is that all the insurance market provisions are subject to strike. All the wellness and prevention provisions are subject to strike. The Senate parliamentarian said to us that if you try to write substantive health reform in reconciliation, you'll end up with Swiss cheese.

Then let's go back to why this works as a compromise. I understand why it would be preferable for Republicans. But for supporters of a public plan, the key advantage is that the public plan is big. It can negotiate discounts with providers. In the form Sen. Rockefeller offered, it can even use Medicare payment rates. These co-ops don't seem like they'd have that size or weight. How would they compete with large private insurers?

They might have that weight. One option is for a national cooperative. That would give it the heft and weight to compete. But you know, one of the interesting things when we talk to experts is that they say critical mass is probably around 500,000 members. Puget Sound is probably around 580,000 and they compete successfully against much larger entities. The experts tell us that there are probably advantages of size up to a point, but after that point, the law of diminishing returns sets in.

Who would charter these? What is the process? Do I go over to my local health insurance exchange and put in an application?

The way co-ops typically are formed, people who feel they're not appropriately served, or not served at all, band together. They form an organization, elect a board, hire people to do the work, pool their money, and the organization goes forward.

These cooperative entities would provide their contracts through the exchange just like everyone else, be subject to the same rules as everyone else, in terms of reserve requirements, in terms of what kind of contracts they could offer. People would go to their exchange, they'd see the option, and if they liked it, they'd sign up, and then they become one of the members, because every member is an owner. And they would have elections and that elected board would choose the leadership.

Would there be regulations on how many of these there would have to be in each state?

We've not contemplated having that in the health care reform law, but there is clearly an economic requirement in order to have the leverage to negotiate with providers to get competitive rates, you need greater bulk. That's where we believe we need 500,000 lives to be competitive.

That's probably one of the two major items of discussion still remaining here. They're various options for consideration if you will. I offered the G-11 group three models. One is state-based, so every state has one. I don't think that works frankly. In states like mine, the pool wouldn't be big enough. The second would be a national entity. That's probably too limiting as well.

What you probably need is a national entity with state affiliates, and the further flexibility so those states can have regional pools. So in our part of the country, you might have North Dakota, South Dakota, Montana, and Wyoming go together. Out east you might have Maine, Vermont, and New Hampshire together. We're consulting with experts tomorrow about that.

Where did this idea come from? I've done a fair amount of health care reporting, and this is the first I've heard of it.

I guess it came out of conversations in my office after we were asked to see if we couldn't come up with some way of bridging this chasm. Part of it is that we're so used to cooperative structures in my state. They were begun by progressives, they came out of the progressive era. And they're so successful in our state. So I can't really say we came up with some brand new idea. We just thought about our own experience.

What has been the reaction of some of your more liberal colleagues to this?

I think it's fair to say mixed. Those who really want public option because they really want single payer, this does not satisfy their position. Others who really want a competitive insurance model kind of like it. Others who are looking at how you put together the votes are intrigued by it. And on the Republican side, a grudging acceptance that this may be one way to increase competition that does not increase government control.

Let me ask you one last question on that. I understand why this proposal wouldn't satisfy liberals who want single-payer. But why does it arouse Republican opposition? It seems, in a way, to be very small-r republican.

Because they don't...ah, you know, you'd have to ask them. It would just be my surmise on why some of them don't like it. They really don't want a competitive model, at least some of them.