Health-Care Cooperatives: Fig Leaf or Fix?

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It is unclear, meanwhile, whether the White House can calm liberal Democrats' concerns that Obama is conceding too much. Administration officials spent Monday trying to tamp down media reports that Obama was retreating on the issue. White House aide Linda Douglass said that Obama's position is unchanged. "The President has always said that what is essential is that health-insurance reform must lower costs, ensure that there are affordable options for all Americans, and it must increase choice and competition in the health-insurance market," Douglass said in a written statement. "He believes the public option is the best way to achieve those goals."

"Unproven" Model

Senator Jay Rockefeller (D-W. Va.), a leading backer of the government insurance option, continued to call public competition "a must." In a written statement, Rockefeller said, "There are real concerns about the potential impact of health-care co-ops on consumers, and we cannot afford to hang our hat on any unproven, unregulated, or unreliable model for health-insurance coverage. At a minimum, we need to know more of the facts. And I've asked these outside experts to give us detailed responses on a tight turnaround so we can keep moving forward."

Critics of the cooperative proposal say co-ops cannot fundamentally change the economics of health care the way that a national-scale government-run program can. Jacob Hacker, a health-care expert at Yale University, said cooperatives don't enjoy the bargaining heft of a public option. A public option would be nationwide compared with separate, localized entities that could take years to start from scratch. "They are going to be a waste of the Administration's energy and dollars because of a lack of effectiveness on the ground," Hacker said.

The chicken-and-egg quandary remains: how to attract a large enough number of consumers to a co-op so it has the kind of purchasing power that would let it negotiate lower rates.

This could be negated if the government required individuals to have coverage and provided a subsidy for those unable to afford market rates, which could then be redeemed for co-op coverage, says David Manning, a former Tennessee Commissioner of Finance and Administration who now works as a private consultant. "Then they would accumulate membership faster because you'd create a demand for their services rather quickly."

LeVine is a correspondent in BusinessWeek's Washington bureau. Deprez is a reporter for BusinessWeek.

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