Health care co-ops

As hopes for the inclusion of a "public option" in any health care reform effort rapidly fade, talk has arisen in Washington of promoting health care "co-ops" as a viable alternative. The push for co-ops -- and the public option -- seems to stem from a belief that for-profit companies are greed-riven entities, attempting to generate profits through denial of care to customers. More virtuous non-profit or public organizations, freed from the shackles of profits, could devote revenues entirely to their customers, providing a superior level of care.

Or at least that's the theory. This Washington Post story should give pause to those who buy into such thinking:

For the North Dakota insurance sales reps, March may have been the ideal time to enjoy the swim-up bar at a resort on Grand Cayman Island. But back on the northern Plains, where temperatures were below zero, policyholders at Blue Cross Blue Shield of North Dakota were less delighted when they learned about the trip for 66 staff members and guests.

Word of the $238,000 Caribbean retreat broke last winter, compounded by news of other perks: $15 million in executive bonuses over five years, $400,000 for charter flights and $35,000 for a vice president's retirement party. And when the ensuing uproar cost Michael Unhjem his job as chief executive, his landing was softened by a $2.5 million severance payment. The golden parachute had been added to his contract after his 2006 drunken-driving arrest, a state audit pointed out.

In an era in which stories of corporate excess have become common, the drama of North Dakota's dominant insurer resonated deeply here, largely because the state's nonprofit Blue Cross Blue Shield is essentially a cooperative, owned by policyholders. It is an arrangement close to the model promoted by powerful lawmakers as an alternative to the "public option" that would put the federal government in the insurance business. The legislation that the Senate Finance Committee will probably approve Tuesday calls for the creation of health insurance cooperatives in all 50 states and the District.

If health care inflation is to be brought under control then private sector companies must play a central role. Government is synonymous with waste and inefficiency while North Dakota's experience would seem to indicate that non-profit status does not eliminate excesses. For companies to survive in the marketplace they must be absolutely ruthless in their cost-cutting measures. At the same time the marketplace ensures such cost control should not undermine the product for fear customers may leave for competitors.

Is that to say stories of excess are unheard of in the private sector? No, not at all, but they're also a good indication of an uncompetitive environment. It is competition which provides the needed discipline to assure both low costs and a quality product (which Blue Cross/Shield lacks in North Dakota). Unleashing market forces, however, appears to be the last thing on the mind of those currently seeking to remake our health care system.