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A Government-Sponsored Co-Op is NOT Market-Based Reform

“Fannie Med” Differs from Small Business Health Plans

“We’re going to have some type of public option—you can call it a co-op, call it whatever you want...” — Senate Majority Leader Reid, quoted in The Washington Post, July 10, 2009

As they attempt to craft a “bipartisan compromise,” Democrats on the Senate Finance Committee are advertising a potential “solution” to a government-run health plan in the form of government-chartered co-ops. While these proposals are being sold as a way to create health insurance competition, a close examination reveals that the concept differs significantly from other Republican-led efforts to create new pooling opportunities: •

Senate Budget Committee Chairman Conrad recently confirmed that co-ops could receive $6 billion in federal government funding to serve as “seed money” and reserves for the new plans. According to statistics compiled by Modern Health Care, this “seed money” would exceed the total annual revenues of all but 20 of the nation’s hundreds of private health plans—including such well-known companies as MetLife. No Republican proposal for small business health plans or Association Health Plans has included provisions providing federal taxpayer dollars to purportedly private health plans.

A white paper released by Senator Conrad regarding co-ops mentioned nothing about federal “seed money” provided to co-ops ever being repaid. Even language in House health “reform” legislation (H.R. 3200) includes provisions requiring the government-run health plan to repay seed money—though not with interest, whether at market-based rates or lower Treasury rates of interest. By contrast to the Democrat proposals, no Republican proposal for small business health plans includes language providing free or reduced-rate loans to plans—because no Republican proposal gives purportedly private health plans access to the federal Treasury, one of the hallmarks of any government-run plan.

The Conrad white paper also noted that “by a date certain, each State would be required to have at least one qualifying co-op.” No Republican proposal for small business health plans includes a federal mandate requiring that such plans exist—it merely permits private entities to offer additional options.

Senator Conrad has recently claimed that the co-op “is expected to enroll 12 million people, making it the thirdlargest U.S. insurer”—and raising serious questions about whether such a large insurer, chartered by the federal government, would be permitted to become insolvent. No Republican proposal for small business plans would create such a scenario—not least because small business health plans would not have access to federal taxpayer dollars in the first place.

Although the details to date about the co-op proposal have been scant, some Members may be concerned that the concept currently being discussed would create another government-sponsored enterprise, chartered by Congress, that would be “too big to fail” and could in time require yet another federal bailout—not unlike Fannie Mae and Freddie Mac. While supporting efforts to offer additional market choices for consumers, Members may believe that the co-op plan being discussed would, rather than reducing health care costs, instead result in significant new taxpayer liabilities—both in the short term and the long term. Therefore, Members may be concerned that a co-op will do for health care what Fannie Mae and Freddie Mac have done for the housing sector. STAFF CONTACT For more information or questions, please contact Chris Jacobs at 6-2302.

A Government-Sponsored Co-Op is NOT Market-Based Reform  

A Government-Sponsored Co-Op is NOT Market-Based Reform “Fannie Med” Differs from Small Business Health Plans

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