Warning: Co-op Kool Aid Is Bad for Your Health

I'm beginning to think that the Kool-Aid being served at meetings of
the Senate Finance Committee's soon-to-be infamous Gang of Six is
coming from either fantasy land or the health insurance industry.

For those of you who might not be following the sorry machinations
of health care reform in the Senate Finance Committee, the Gang of Six
is a group of three Democrats and three Republicans hand-picked by
Committee Chair Max Baucus,
who is one of the three Democrats. The gang meets often, supposedly
drafting a bipartisan bill. In reality, if such a bill emerges, it will
be a gift to the insurance industry because the gang includes some of
the industry's best friends on Capitol Hill.

Thanks to gang member Kent Conrad,
a Democrat from North Dakota, the gang reportedly is giving serious
consideration to replacing the good idea of a public insurance option
with an idea that is sheer fantasy: a few nonprofit co-operatives that
would be expected to compete with the cartel of giant for-profit
insurance companies and "win in the marketplace," to use a favorite
term of my former CEO and cartel heavyweight, H. Edward Hanway.

If you don't believe anything else I have said or written, please
believe this: nonprofit co-operatives don't stand a snowball's chance
of competing with those big companies and making a whit of a difference
in the lives of the 75 million Americans who either have no insurance
or have such marginal insurance they might as well have no insurance.

Kool-Aid came to mind as I was reading a story in the Wall Street Journal
this week about Conrad's continuing and naive insistence that co-ops
could work. I remembered sitting in a meeting of other insurance
company executives a few years ago. A leading advocate of the
high-deductible plans the industry is trying to force us all into these
days (and out of the plans insurance industry pollsters and politicians
say we are all happy with and can stay in--if we wish upon a star),
grew so exasperated after failing to convince us that these plans would
be good for most Americans, he finally said, "Look, you're just going
to have to drink the Kool-Aid."

It looks as if the Gang of Six is about to offer its co-op Kool-Aid
to the other members of the Senate Finance and to tell them to drink up.

The reality is there has been a tremendous consolidation in the
health insurance industry over the past 15 years. A cartel of very
large for-profit insurance companies now dominates the industry. One
out of every three Americans is enrolled in some kind of plan offered
by just seven of those large companies. Almost all metropolitan areas
in the country--and states that are more rural than urban-- are now
dominated by just two or three insurers. It is impossible for even one
of the other large insurers to break into a market dominated by its
competitors.

Take Philadelphia, where I live and where CIGNA, my former employer is based, as an example. The lion's share of the insurance market in Philly is controlled by Independence Blue Cross and Aetna.
CIGNA would love to be a big player in its own hometown but has never
been able to scale up to be a serious competitor. It has some business
there but not much compared to Independence and Aetna. If CIGNA can't
overcome the huge barriers to entering that market, a nonprofit co-op
wouldn't have a chance.

Advocates of co-ops point out that they work in a few other segments
of the economy, and primarily in a few rural parts of the country, such
as in the cranberry and raisin businesses.

Growing cranberries and raisins is a heck of a lot different from
providing health care coverage to 50 million Americans who don't have
it because they can't afford the overpriced policies from Big
Insurance--or because they can't buy coverage at any price because of a
"pre-existing condition."

To be sure, health insurers take every opportunity to badmouth
co-ops, saying they are a backdoor to socialized medicine. Their
criticism is disingenuous. Secretly, they would love to have a bill
that creates co-ops that won't work instead of a single-payer or public option that has proven successful in other western countries.