Two members of the Gang of Six, Senators Saxby Chambliss (R-GA) and Kent Conrad (D-ND) were positively crowing about the conservative bona fides of their plan yesterday on MSNBC. Because the proposal will actually be scored as a $1.5 trillion tax cut under current law (with the Bush tax cuts set to expire in 2012), they are confident that House Republicans, who have vowed never to vote for a tax increase, will go for it.

Watch it:

The Congressional Budget Office will score the plan as a $1.5 trillion tax cut, as it lowers the corporate tax rate from 35 percent to between 23 and 29 percent, eliminates the alternative minimum tax, and lowers personal income tax rates. But by closing loopholes, the Gang of Six says they’ll raise $1.3 trillion in revenue.

The disparity can only be explained because they employ an accounting gimmick — the two projections use different CBO baselines. The tax cut number is compared to current law, which assumes the Bush tax cuts will expire and the AMT will take effect, neither of which seems likely to happen. The revenue number is compared to a “plausible baseline” (which assumes expiration of the high-end Bush tax cuts).

The plan also recommends “reforming” Social Security in ways that will even affect current retirees. But not a penny of the money saved will go to deficit reduction, which begs the question — why include Social Security at all? The Gang of Six has said all the changes will go toward securing the long-term financial security of the program, but Social Security is already solvent until 2037 and does not contribute to the deficit.

The cuts in the Gang of Six plan aren’t minor, either. It proposes a chained CPI adjustment to Social Security, which may not be a bad idea when combined with other measures to boost benefits and strengthen the program, but on its own is tantamount to a $1,300 cut each year for recipients over their lifetimes. Strengthen Social Security co-chair and former Obama adviser Nancy Altman has denounced the idea as an overly harsh cut. “The chained-CPI is poor policy, and given that seniors vote in disproportionately high numbers, it is equally poor politics,” she said.

Today, ABC News’s George Stephanopolous interviewed Sen. Kent Conrad (D-ND) about the Commission’s recommendations. The senator repeatedly praised the proposals, distancing himself from other leading Democrats like House Speaker Nancy Pelosi (CA), who has roundly condemned the deep cuts to social services advocated within them. At one point, Stephanopolous asked Conrad if he would vote for the proposals as written. The senator didn’t give a direct answer, but said that there’s no way to reduce the deficit in a way “that’s not controversial and difficult.” He then reminded the ABC host that today is Veterans’ Day, and that we should “think of what they sacrificed for this country. If some of us have to sacrifice a political career to get this country back on track then so be it. It has to be done”:

STEPHANOPOLOUS: Could you vote for these proposals?

CONRAD: Look, we’re going to have a chance to change them. But I am going to vote for proposals that do as much as this does to reduce the debt [...] There is no way doing it that’s not controversial and difficult. But you know today is Veterans’ Day. You think of what they sacrificed for this country. If some of us have to sacrifice a political career to get this country back on track then so be it. It has to be done.

STEPHANOPOLOUS: That is an admirable sentiment, sir, it doesn’t appear to be shared by other members of the Commission.

Watch it:

What Conrad failed to mention as he was invoking American veterans to praise the commission’s report is that it one of its recommendations could seriously hurt the veteran population. One of its proposals is to “establish co-pays in the VA medical system and change the co-pays and deductibles for military retirees that remain in that system,” meaning that it asks America’s veterans to shoulder a greater financial burden in order to utilize the VA system — in a way, moving it towards privatization, and undermining the principle that America will pay to take care of its warriors. (HT: DailyKos diarist Barbara Morrill).

Conrad quickly clarified that he wasn’t embracing the Republican approach, which is simply extending all of the tax cuts forever, calling that a “formula for the decline of the United States.” Today, Conrad appeared on CNBC to keep on trying to explain his position. “Can you clarify what’s more important to you: the revenue you would generate by letting them expuire on the wealthy or the damage that it would do to a nascent economic recovery if you raise taxes,” asked CNBC’s Joe Kernen. “What should we do?” Conrad replied that taxes need to eventually go up on the rich but “I don’t think this is the moment“:

We’ve got to be very careful with the timing of what we do. There’s no question in my mind that taxes have to go up on the wealthiest among us. The question is when. I don’t think this is the moment.

Watch it:

Conrad’s argument is understandable, and far better than the Republican position of passing deficit financed tax cuts in perpetuity, but it’s still misguided. While Conrad’s aim is to preserve the tax cuts in order to boost the economy, the Congressional Budget Office has found that, of the available tax and spending options, cutting income taxes in 2011 is the least stimulative of all. In fact, such a move generates just 10 to 40 cents in economic activity for every dollar spent. Cuts for high income households are even less effective, as “higher-income households…would probably save a larger fraction of their increase in after-tax income.”

Reducing income taxes also has, by far, the lowest effect on job creation. Other options like extending unemployment benefits, cutting payroll taxes, or investing in infrastructure all have considerably higher bang for the buck. Plus, as the Center on Budget and Policy Priorities pointed out, temporarily extending the tax cuts for the wealthy induces “a substantial risk that Congress would continue extending the tax cuts and even make them permanent, creating much larger deficits for years to come.

Indeed, as the Washington Post Editorial Board wrote, “a temporary extension of the upper-income tax cuts would be the worst of both worlds. In the short term, it would be ineffective as an economic stimulus. In the long term, it would add to the deficit.” A two year extension of the cuts for the rich would cost about $75 billion, with little in terms of economic activity to show for it.

Yesterday, Sen. Kent Conrad (D-ND), the chairman of the Senate Budget Committee, called for a temporary extension of all the cuts, including those for the wealthy, adding that “he thinks waiving so-called pay-go rules to extend the upper income rates should be considered”:

“Pay-go is not just a line in the sand,” he said. “There is a reason that you have a pay-go waiver, which requires 60 votes.”

Today, Conrad clarified that he is by no means endorsing the Republican line on a deficit-financed permanent extension of all the Bush tax cuts, saying that “the Republicans’ proposal to me is a formula for the decline of the United States.” His position is that the tax cuts for the rich should only be extended for 18-24 months, “until the recovery is on more solid ground.”

While Conrad’s position is far more nuanced than that of the Republicans, extending the Bush tax cuts is still one of the least stimulative steps that policymakers can take to boost the economy, generating just 29 cents of economic activity for every dollar spent (since the benefits overwhelmingly go to the wealthy, who are far more likely to save a dollar received than is someone from the lower- or middle-class). Extending all of the cuts for two years would cost $558 billion, including debt service costs, according to the Pew Fiscal Analysis Initiative.

Today, when asked if Democratic leaders are willing to consider extending all of the Bush tax cuts, Speaker of the House Nancy Pelosi (D-CA) said, “No. Our position has been that we support middle-income tax cuts.” Treasury Secretary Timothy Geithner also reiterated the administration’s position today:

Mr. Geithner said there is “still some uncertainty about how strong the recovery is going to be,” which may be impacting spending decisions by businesses and individuals. But he discounted that as a reason to extend the Bush-era tax cuts for top earners, saying most private forecasts show moderate economic growth and increasing public confidence in the recovery.

Yesterday, Sen. Ben Nelson (D-NE) “said through a spokesman that he also supported extending all the expiring tax cuts for now, adding that he wanted to offset the impact on federal deficits as much as possible.”

Importantly, the task force would ensure a bipartisan outcome. Broad bipartisan agreement would be required to move anything forward. Fourteen of the 18 Task Force members would have to agree to report the recommendations. And final passage would require supermajorities in both the Senate and House.

“Our Bipartisan Fiscal Task Force is designed to get results,” said Conrad and Gregg.

As Jon Chait points out there’s something very strange about their apparent belief that the impediment to broad reform in the United States is that it’s too easy to get bills through congress. The whole commission concept has been sold as a way of streamlining the dysfunctional legislative process, but what we have here is a proposal to make it more dysfunctional: “if that fails, maybe they’ll conclude the process was too easy. Next time they could also require the commission members to create a cold fusion reactor or retrieve a magical ring from inside a volcano.”

I think the easiest way to make sense of this is that commission proponents are hoping to use the fact that liberals won’t give them their pet commission as a reason to block progressive priorities. But this isn’t a commission worth blocking.

This all started when Conrad started saying Reid’s book shows that France has a great system without a public option. In fact, the French system shows no such thing and Reid’s book says that “In practice, France acts like a single-payer system.”

Today, though, Conrad went on Dylan Ratigan’s MSNBC show. Ratigan’s hobbyhorse for weeks (months?) now has been to complain that the health reform bill isn’t dramatic enough in its impact on most people. He wants to see something more Ron Wyden-style that would sever the employment-insurance link more rapidly. I think this is a fair point, but it’s not practical and in the long-term it’s not going to matter since the bills in congress do head in that direction. Either way, Ratigan had Conrad on this morning to harass him about this, resulting in a dialogue in which Conrad asserts that Germany, France, Japan, Switzerland, and Belgium all have great employer-based systems. Ratigan points out once or twice that this is wrong, but Conrad insists, Ratigan seems to lose his confidence and pivots to Singapore, then Conrad comes back to his claim about Europe and Japan and says everyone should read T.R. Reid:

I think it’s fair to say that Ratigan had this right the first time. Employment isn’t totally irrelevant to French health care, but it works nothing like our employer-based system and most French people are covered by what amounts to a single-payer system. In Germany employers have a big role in financing people’s insurance premiums but, again, that’s not the same as what America’s employer-based system does. In America what happens is that the cost of your premium is split between you and your employer, but your choice of insurance options is determined by your employer’s HR department. The German system is more like a payroll tax that funds government subsidies for you to sign up for the “sickness fund” of your choice. In Switzerland “individuals — not employers or the government — choose from a broad array of health plans, sold by private insurance companies.”

I don’t know anything about Japanese or Belgian health care and I don’t want to look it up. But the common thread here, it seems to me, is that you shouldn’t confuse the idea of financing things through a levy on employers with the idea of a system in which the employer actually plays a large role. You might like at Social Security and decide that it’s an employer-based pension system, since it’s financed largely through payroll taxes and historically speaking eligibility for benefits was related to which sector you worked in (initially, for example, agricultural workers and domestic servants were excluded). Today, though, it’s actually a public sector pay-as-you-go pension scheme.

According to Kent Conrad it does. Here he is talking to Ezra Klein:

EZRA KLEIN: How much of this is a product of political systems? Reid has a line in the book where he says the difference between America and France is that the French love their system and change it all the time. The Americans hate their system and can’t seem to touch it.

ENT CONRAD: It’s fascinating, isn’t it? I just don’t know. I’ve been trying to figure this out for a long time. I was very involved back in the ’90s reform effort. I was part of the Chafee-Durenberger centrist alternative to the Clinton plan. I’ve been searching ever since for models that I thought would fit America’s values and American culture. I’ve felt for a long time that a system that’s not government-run, but does have universal coverage, does a good job on quality and containing costs, and has the elements we see in some of these other countries is most likely to fit here and win political acceptance and be effective. Somehow in this debate, we’ve gotten very sterile. If it’s not public option, somehow it won’t be effective at providing competition to the insurance industry. I just don’t think that’s what the Reid book shows or what other observers of international systems would conclude.

As I read that I was saying to myself “but what about Medicare.” Fortunately, Ezra asked about this:

EZRA KLEIN: The question of values always runs into the existence of Medicare. You can imagine people saying that Medicare was simply too government-driven when President Johnson was trying to enact it. But Americans love Medicare.

KENT CONRAD: I’ve thought about that a lot. T.R. Reid’s book is so interesting on this point. Different parts of our system fit different models. Part fits the Beveridge model. Part fits the Bismarck model, where employers and employees contribute and it’s private doctors and hospitals. And other parts are national health insurance, which is Canada, and that’s Medicare. For our senior citizens, we have adopted the model that is closest to the Canadian model. But there are serious issues with that model if it spreads society-wide in terms of waiting times. I don’t think that fits American culture.

This is nonsense. Canadian waiting times are caused by budgetary issues. If they went up to our per capita level of Medicare spending, they would eliminate those waiting times. The relevant difference between US Medicare and Canadian Medicare is that we get more services because we spend more money, not that expanding the system to cover those under 65 would magically cause waiting times.

At any rate, a couple of questions later Conrad is back to talking about culture:

EZRA KLEIN: Do you support the public option?

KENT CONRAD: No.

EZRA KLEIN: Why?

KENT CONRAD: I go back to the T.R. Reid book. I don’t think a government-run plan best fits this culture. A plan that’s not government-run has the best chance of succeeding in being passed into law.

Conrad’s right, of course, that it’s easier to pass a bill that goes easy on for-profit interests than one that includes a public option. But that’s not because of “culture” it’s because of interest-group pressure. And of course one major practical problem with the public option is that powerful senator Kent Conrad opposes it. But Conrad doesn’t—or at least shouldn’t—get to cite his own opposition as the reason he opposes it.

Sen. Kent Conrad (D-ND) has been one of the fiercest opponents of including a new public plan in health care reform legislation, even going so far as to say that it’s a “wasted effort” to even try to get one. At a hearing before the Senate Finance Committee this past Tuesday, Conrad made a curious argument against the public option — he cited the French health care system as an example of why we don’t need one:

Let me just conclude for my progressive friends who believe that the only answer to getting costs under control and having universal coverage is by a government-run program. I urge my colleagues to read the book by T.R. Reid, “The Healing of America.”

I had the chance to read it this weekend. He looks at the health-care systems around the world. And what he found is in many countries they have universal coverage. They contain costs effectively. They have high-quality outcomes, in fact higher than ours. They’re not government-run systems in Germany, in Japan, in Switzerland, in France, in Belgium — all of them contain costs, have universal coverage, have very high quality care and yet are not government-run systems.

The truth is, as the Washington Post’s Ezra Klein notes, France has had a public insurance system that covers all of its citizens since 1945. Known as Sécurité Sociale (social security), their public insurance program accounts for nearly 75 percent of total health expenditures in France, and people have the option of buying complementary private health insurance if they’d like. In its most recent ranking of health care systems, the World Health Organization concluded that France has the best health care system in the world.

Budget master Kent Conrad

This is a bit in the weeds, but you should go read Ryan Grim’s story about Kent Conrad directing the CBO to score health care reform in a 20-year budget window rather than the usual ten. This will tend to make the score less accurate, since projections get more and more uncertain the further you go out. It will also make it harder to pass a health care bill. But it will disadvantage the more-liberal House bill more than it disadvantages the Senate bill. And I think it’s usually best to assume that members engage in these kind of procedural moves because they understand their impact—Conrad is trying to kneecap the liberal version of health reform, and considers making it harder to pass any kind of health reform an acceptable price to pay to meet that goal.

Officially, though, we’re just supposed to think that Conrad really, really hates budget deficits. But as Ezra Klein notes, Conrad’s record doesn’t totally support that:

The first came earlier this year when Conrad modified Obama’s first budget. Obama had eliminated a couple of Bush-era gimmicks that made the deficit appear smaller than it really was. Bush, for instance, shortened the budget window from 10 years to five, so the total deficit sounded smaller. Obama’s budget returned it to the traditional 10. And then Conrad changed it back. The Politico reported that Conrad made this decision “because of the uncertainty of long-range forecasts.” Others thought he did it to hide the size of the deficit. In any case, 10 years, as the alert reader will notice, is less than 20 years. If 10 years was too long a time period for certainty, then it is difficult to see how 20 years could possibly be acceptable.

The second came in 2003, when Conrad voted for the Medicare Modernization Act, better known as Medicare Part D. The Congressional Budget Office estimated that the bill would increase the federal deficit by $421 billion and reduce federal revenue by another $174 billion. The total cost to the deficit, then, neared $600 billion. Conrad not only accepted the CBO’s 10-year time frame, but he voted for the bill. His press release enthusiastically touted the fact that the bill would “bring more than $70 million to North Dakota hospitals over the next ten years.”

Conrad’s record in the Senate, then, would lead you to believe a couple of things. For one, he distrusts long-range projections. Even 10 years is too uncertain. He also believes some priorities overwhelm deficit concerns, health-care coverage being one of them. But when faced with a health-care reform that will be deficit neutral within the 10-year time frame, he is demanding that it instead be measured against an even more uncertain 20-year time frame, and by an agency that he claims underestimates savings. The CBO’s scores are terrible, in other words, and come in such small portions!

To be fair to Conrad, the vast majority of soi disant “deficit hawks” on the Hill are huge hypocrites, much worse than Conrad. Conrad didn’t vote for the 2001 Bush tax cut, the invasion of Iraq, the 2003 tax cut, or the Kyl-Lincoln estate tax cut all of which attracted Democratic support, typically from the kind of members who complain about deficits. So in the scheme of things, he really is a committed deficit hawk. Still, per Ezra’s post there’s still lots of wiggle-room in this commitment, and the latest twist makes very little sense on the merits.

Note that the theory that the CBO underestimates the cost savings in health reform isn’t just some nutty theory. Among others, the Institute of Medicine agrees. I think there are sound reasons for the CBO to be conservative in its approach, but we should keep in mind the fact that the CBO’s approach is deliberately designed to be conservative.

Wilson has accused “liberals who want to give health care to illegals” of using his opposition to distract from the debate at hand. Rep. Michael Burgess (R-TX) and House Immigration Reform Caucus (HIRC) Chairman, Rep. Brian Bilbray (R-CA) have both suggested that President Obama was either lying or talking about “some other bill.” Former Gov. George Pataki (R-NY) says Obama’s comments raise “questions” and former Rep. Tom Tancredo (R-CO) has also come out of the woodwork to say “Joe is right, Obama is a liar.” Rep. John Fleming (R-LA) said that he was outright insulted by Obama’s myth-breaking, and Rep. John Boehner (R-OH), Rep. Eric Cantor (R-VA), RNC Chairman Michael Steele, and many others have defended Wilson’s position by slamming Democrats for voting down stringent verification mechanisms. Watch it:

Democrats have made it pretty clear that they’re not interested in providing “illegals” health care. Their decision to vote against verification amendments had more to do with the fact that one would’ve given private insurance providers unprecedented access to the sensitive income and identity information and another would have blocked several categories of legal immigrants from receiving benefits. Nonetheless, Sen. Kent Conrad (D-ND) and Sen. Max Baucus (D-MT) have expressed that they’re willing to back down.

Baucus and Conrad should tread carefully. Not only would such a move validate the lies and fears that right-wingers have stoked in both the immigration and health care debates, it could also seriously hurt all Americans. When Colorado passed a series of stringent measures requiring applicants for most state benefits to prove their immigration status, it cost the state $2 million in its first year alone and — despite having promised to eliminate 50,000 undocumented immigrants from the state’s public benefit rolls — state officials could not prove that any undocumented immigrants were being denied public services. The Government Accountability Office further found that documentation requirements used to prove Medicaid eligibility caused thousands of eligible U.S. citizens to lose Medicaid coverage without saving taxpayers any money: for every $100 spent by taxpayers to implement documentation requirements in six states, only 14 cents were saved. Yesterday, Bilbray announced on CNN that the E-Verify program should be used to check eligibility. However, the Immigration Policy Center points out that the web-based program has a “high probability for database errors.” A human resources association claims that E-Verify has a 4.1% error rate — one that could grow if implemented on a larger scale and deny or dely health care coverage for a sizable percentage of the American population.

It would be one thing if such mechanisms were necessary to block undocumented immigrants from getting health care, but there’s several barriers already in place. The 1996 Personal Responsibility and Work Opportunity Reconciliation Act prohibited undocumented immigrants from being eligible for most public benefits and codified procedures for verifying eligibility. There’s nothing in the bill that changes that or the stringent verification mechanisms in Medicaid discussed above. Tax policy experts have further pointed out that it would be difficult for undocumented immigrants to even apply for subsidies, because tax returns are required to determine a person’s eligibility and the few undocumented immigrants who do file taxes using phony Social Security numbers almost always use “personal identification numbers” from the IRS, which immediately flag their immigration status.

Health-care reform proponents claim that few undocumented immigrants enrolled in Medicaid even before proof of citizenship was required. If that’s true, Republicans are essentially belly-aching over a non-issue. Ultimately, a flawless verification mechanism simply doesn’t exist and it’s probably worse to deny hundreds of thousands (if not millions) of eligible citizens and legal immigrants health care coverage than to let a small handful of ineligible immigrants get health insurance that they need just as much as anyone else. After all, an effective health care system covers as many people as possible and as Matt Yglesias points out, it’s too bad the President and Democrats are getting pounded for doing something that they’re not, despite the fact that it’s actually not a bad idea if you care more about what makes economic and moral sense and less about what makes sense politically.

Jonathan Cohn has an excellent explanation of why Senator Kent Conrad’s notion that we ought to reduce our ambitions in health reform is daft:

Put aside, for a moment, whether this makes sense substantively. It makes absolutely no sense politically. Scaling down legislation basically means gutting the benefits that would go to the working and middle class. In other words, it would help fulfill the fear many of these voters already have and that opponents of reform have tried hard to stoke: That reform doesn’t have much to offer the typical middle-income American.

You can imagine why Republicans might think this is a dandy idea. But why on earth would Democrats agree?

Obviously one answer could be that some Democrats prefer to see health reform defeated, but owing to their partisan allegiance don’t want to come right out and say that.

As I’ve said from the beginning of this process, the most important known unknown in health reform is nothing to do with the Obama administration’s tactics and everything to do with the actual subjective premises of the handful of moderate Democrats who control the balance of power in the Senate. If Max Baucus, Kent Conrad, Mary Landrieu, etc. want to see a universal health care plan enacted there’s nothing stopping them. But if they don’t want to see a universal health care plan enacted, neither the left nor the White House has any particularly impressive leverage to use against them. In the House of Representatives where the leadership does have more leverage, Waxman and Pelosi seem ready and able to deliver the votes necessary to pass a good bill. But if moderate Senators don’t want a good bill, we won’t get one. And I think it increasingly looks like they don’t want one.

Congress should approach health care reform in steps, instead of trying to put together a comprehensive package said U.S. Sen. Mike Enzi, R-Wyo.

Health care is so massive that reforms can’t be made with one major bill, which is what the Obama administration and congressional Democrats are pushing, Enzi told members of the Casper Rotary Club on Monday at the Parkway Plaza Hotel. [...]

“We do need to have health care reform,” Enzi said.

“We do need to get it right. We need take the time to do it. I think the only way it will happen is we need to break it down into smaller parts than we have now and put it through one at a time.”

Enzi also said that he supported Sen. Kent Conrad’s (D-ND) co-op idea. “Small business health plans are one way of increasing choices,” said Enzi. “Co-ops will increase choice.”

But the reaction of prominent Republicans, conservatives, and the insurance industry to the idea of “a nonprofit health care cooperative as an alternative to a new government insurance plan” indicates that such a concession would not lead to the “overwhelming vote in the United States Senate” that Grassley says he wants. For instance, Sen. Orrin Hatch (R-UT) told the New York Times, “You can call it a co-op, which is another way of saying a government plan.”

On Fox News yesterday, Sen. Jim DeMint (R-SC) agreed with Fox News’ Neil Cavuto’s claim that a co-op is really a “trojan horse”:

DEMINT: Whatever they call it Neil, this is a government takeover. They may try to call it a co-op. They can call it a public option, but you know they’re all on record saying they want a single payer government system, so any Republican now that helps them pass a bill is helping them pass a government takeover of health care. My hope is we can stop this and start over with some real reform. A number of us have been talking about ideas that we know would work, but unfortunately this administration and the Democrat majority, they really don’t want insurance reform at this point. What they want is more government control of our health care system.

“Any Republican senator who helps them pass something with a government stamp on it, the way they’re talking about, is, I think, just betraying the American people,” added DeMint. Watch it:

Health insurance lobbyist Karen Ignagni, one of the top opponents of a public option, was not receptive to a co-op either. “It may sound benign, but it may use administered prices,” Ignagni told the New York Times. “I’m not sure it solves any problems.” The Republican National Committee released a memo yesterday attacking the co-op, saying the public option “by any other name is still government-run health care.”

Substantially, the problem with the co-op idea is that it lacks “the main advantage of the public option,” which is “reimbursement rates for doctors and hospitals set by federal law” that are “central to the cost-saving promise of a government-run health plan and a potentially powerful competitive advantage.” This is one reason why Sen. Kent Conrad (D-ND), the creator of the co-op option, was unable to say this morning that a co-op will bring down the costs of health care.

ROBERTS: What would they do to reduce costs? Because that is one of the central issues of health care reform.

CONRAD: Well, the important thing is they’d provide more competition. … Beyond that, I think it’s very important not to over-promise here. [...]

ROBERTS: So nothing really in driving down the costs of service then?

CONRAD: Uhhh, no. If you believe competition helps drive down costs, then they would certainly contribute to holding down costs.

Conrad stated that the purpose of co-ops is two-fold: 1) “providing additional competition,” and 2) “being an entity that is not government-run, government-controlled.” Watch it:

While Conrad emphasizes the “competition” that health care co-ops would provide to private insurers, health care experts argue they would be too weak to have a major impact. “It’s very difficult to start up a new insurance company and break into markets where insurers are very established,” said Paul Ginsburg, president of the Center for Studying Health System Change. “I don’t see how they’re going to obtain a large enough market share…to make a difference.” The New York Times adds that the history of health care co-ops has not fared well:

The co-op idea is so ill defined that no one knows exactly what it would look like or how effectively it would compete with commercial insurers. [...]

In the 1990s, Iowa adopted a law to encourage the development of health care co-ops. One was created, and it died within two years. Although the law is still on the books, the state does not have a co-op now, said Susan E. Voss, the Iowa insurance commissioner.

Conrad acknowledges his co-op proposal would do little to tackle health care costs, the single biggest challenge of reform. Ironically, the public option –- which Conrad is trying to defeat –- has been estimated by the Congressional Budget Office to significantly reduce costs over time. And yet, according to Conrad, the public option is not on the table simply because “there have never been the votes in the United States” for it.

I’m still working out the details of a co-op approach. I will tell you that there are some instances of co-ops being set up and just having a very difficult time getting off the ground because they don’t have the scale and the resources to be able to compete effectively. What I’ve asked my health care team to do is to look at what evidence we have that this could provide the kind of competition that drives or helps to promote insurance reform and helps to include quality and drive down cost. If I can see some some evidence that this could work, then I’d be happy to consider it. But I will tell you that, as I’ve been very clear about before, I continue to believe that a robust public option would be the best way to go.

Listen:

Both the Kennedy health bill and the Tri Committee bill in the House give Americans the choice of a public option. The Senate Finance Committee, which is expecting to produce a bill by Thursday, is still considering Conrad’s co-op compromise. Under Conrad’s proposal an insurance co-op would be “owned and operated for the benefit of its members — individuals and businesses with fewer than 10 employees” and would operate “at the state level or regionally” to “provide a non-profit, non-government, consumer-driven coverage option in every state to deliver maximum value for consumers.”

But as a Commonwealth brief points out, most co-ops have difficulty fulfilling their goal of offering small employers and individuals a choice in health plans and reducing costs. That’s because to attract a wide array of health plans and exert purchasing power (bargain on behalf of its members), co-ops must enroll large numbers of employers. But without the ability to “offer substantial choice among well-known health plans, it is difficult for co-ops to attract enrolless, who are drawn to co-ops in part because of their ability to offer such choice.” In other words, co-ops would lack the clout of Medicare — which can drive system innovations and payment reforms — Medicare-like administrative efficiencies, or the ability to use Medicare leverage to ensure a large provider network that accepts Medicare prices. A new cooperative health care plan won’t be able to lower costs and drive private insurers to aggressively bargain with providers (and pass the saving on to its beneficiaries in the form of lower premiums).

As former Gov. Howard Dean (D-VT) explained, “the co-ops are too small to compete with the big, private insurance companies. They will kill the co-ops completely by undercutting them, using their financial clout to do it…This is a compromise designed to deal with problems in the Senate. But it doesn’t deal with problems in America.”

The Ironist

In today’s column, Paul Krugman lamented the circular arguments you sometimes see presented as a reason for watering-down reform:

And Senator Kent Conrad of North Dakota offers a perfectly circular argument: we can’t have the public option, because if we do, health care reform won’t get the votes of senators like him. “In a 60-vote environment,” he says (implicitly rejecting the idea, embraced by President Obama, of bypassing the filibuster if necessary), “you’ve got to attract some Republicans as well as holding virtually all the Democrats together, and that, I don’t believe, is possible with a pure public option.”

Timothy Noah had a great example of this near the end of a recent column offering a tour of health care systems around the world:

Afterward, Sen. Ken Salazar, D-Colo., who has since become interior secretary, noted that other countries saw a conflict between profits and health. How could the United States possibly persuade insurance companies to give up profits? [Author T.R.] Reid answered that Switzerland, home to many powerful insurance companies, had done it in 1994 when it adopted the Bismarck model. The insurers fought it tooth and nail, of course, but now they compete energetically to sign up people for basic care on a nonprofit basis because they constitute a customer base for supplemental insurance that they’re allowed to sell on a for-profit basis. This answer didn’t satisfy Baucus. “Perhaps you don’t know how much money [U.S. insurers] have,” he told Reid.

Which would be an amusing and apposite remark from Baucus were it not for the small part that Max Baucus is the most powerful legislative voice on health care policy in the country. It makes sense for Tim Noah or Paul Krugman or Matt Yglesias or TR Reid to ironically step outside the debate and start talking about the political obstacles to really hitting the insurance companies where it hurts. But Max Baucus chairs the Senate Finance Committee! “Political reality” is something pundits and activists need to adjust to, it’s something powerful Senators create.

The idea would be to create multiple state or regional non-profit co-operatives, operating through members who choose a board of directors and a CEO. Unlike Medicare, this model “would lack the market leverage to bargain for lower prices.”

This morning on MSNBC, former Gov. Howard Dean rejected Conrad’s proposal, saying it is “not a real compromise.” “This is a fix for the Senate problem,” he said, “this doesn’t fix the American problem.” After heaping praise on Conrad, Dean explained:

He’s wrong about this. The co-ops are too small to compete with the big, private insurance companies. They will kill the co-ops completely by undercutting them, using their financial clout to do it. In the small states like mine and like Senator Conrad’s, you’re never gonna get to the 500,000 number signed up in the co-op that you need to in order for them to have any marketing [power].

This is a compromise designed to deal with problems in the Senate. But it doesn’t deal with problems in America. And I think it’s time for the Senate to stop playing politics, do what has to be done. … If the Republicans don’t want to get on board, then we can do this without the Republicans.

Watch it:

The Wonk Room’s Igor Volsky also notes that Conrad’s co-op proposal will lack the inherent advantages of a new public option. “Thus, co-ops should be considered as a supplement to — not a replacement for — a public health plan,” Volsky writes.

Senator Kent Conrad (D-ND)

Ezra Klein’s interview with Senator Kent Conrad (D-ND) is probably the best source for information for Conrad’s thinking about health care co-ops as an alternative to for-profit private plans. I think the interview also makes clear that Conrad’s thinking about this is still a bit on the vague side. Part of the issue is that a lot of the thinking is clearly political thinking, thinking about how to come up with something that Republicans will vote for. As Ezra says and as Jonathan Cohn agrees, the merits of this proposal aside it’s just not a substitute for a robust public health insurance option.

To put it most crudely, the available evidence appears to overwhelmingly indicate that governments can provide health insurance of equal quality at lower cost to the private sector. It’s also true that a certain kind of ideological dogma says this can’t possibly be true. The view behind the public insurance option is that the dogma ought to be put to the test through competition. Proposals that aim to do something, nut that don’t aim to put the dogma to the test, are not a compromise. Indeed, the idea of a “public option” is itself a compromise between ideological dogma and the evidence in favor of single payer. The health co-ops seem like an interesting idea to me, but anything that drops the public plan is a proposal to drop the public plan not really a public plan “compromise.” That said, insofar as Congress is inclined to do this it ought to be done well.

Igor Volsky has some suggestions:

Mayo Clinic (Wikimedia)

1. To exert maximum purchasing power and achieve bargaining clout to compete with provider oligarchies (that are currently setting prices) Congress would have to establish a single national cooperative.

2. Congress should allocate federal start-up funds to quickly establish the cooperative.

3. The cooperative should follow all of the rules of the Exchange. It would have to guarantee coverage at community rates and would not be able to discriminate against individuals with pre-existing conditions, or impose lifetime or annual limits on benefits for any participant or beneficiary. The cooperative must commit an appropriate percentage of premiums towards medical benefits.

4. It should be transparent and accountable to its members and the public.

5. The cooperative should be required to provide the same minimum benefits as private insurers.

6. The cooperative could be required to implement delivery system and payment reforms and “replicate the accountable care organizations like the Mayo Clinic and Seattle’s Group Health that provide a proven model for delivering high quality, affordable care in a non-profit, group practice setting.”

It strikes me as a little weird that this idea seems to be flying into place so suddenly out of left field, but it seems to be gaining a lot of momentum over the past few days.

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.

Documents released by Conrad’s office have described the proposal as establishing multiple state or regional health insurance cooperatives. Multiple cooperatives — operating as non-profit health insurance plans — would lack the market leverage to bargain for lower prices, but an independent national program could attract large numbers and substantial market share to exert significant purchasing power.

Still, on its face, a non-profit cooperative in the mold of Group Health Cooperative in Washington State, is just another non-for profit health insurance company, a la a Blue Cross/Blue Shield. The theory relies on the belief that a truly consumer-drive health plan that elects a board of directors and hires a CEO, would have an incentive to reduce costs for its members and champion delivery system innovations. But a single health insurance plan has limited scope to influence the practices of providers and other insurers. In other words, it lacks the clout of Medicare — which can drive system innovations and payment reforms — Medicare-like administrative efficiencies, or the ability to use Medicare leverage to ensure a large provider network that accepts Medicare prices. A new cooperative health care plan won’t be able to lower costs and drive private insurers to aggressively bargain with providers (and pass the saving on to its beneficiaries in the form of lower premiums).

Some of these deficiencies can be overcome if Congress orients the new cooperative towards greater efficiency and care quality. Here are some suggestions:

1. To exert maximum purchasing power and achieve bargaining clout to compete with provider oligarchies (that are currently setting prices) Congress would have to establish a single national cooperative.

2. Congress should allocate federal start-up funds to quickly establish the cooperative.

3. The cooperative should follow all of the rules of the Exchange. It would have to guarantee coverage at community rates and would not be able to discriminate against individuals with pre-existing conditions, or impose lifetime or annual limits on benefits for any participant or beneficiary. The cooperative must commit an appropriate percentage of premiums towards medical benefits.

4. It should be transparent and accountable to its members and the public.

5. The cooperative should be required to provide the same minimum benefits as private insurers.

6. The cooperative could be required to implement delivery system and payment reforms and “replicate the accountable care organizations like the Mayo Clinic and Seattle’s Group Health that provide a proven model for delivering high quality, affordable care in a non-profit, group practice setting.”

While Congress can write the aforementioned rules into the plan’s new charter, the new cooperative will still lack the inherent advantages of a new public option. Thus, co-ops should be considered as a supplement to — not a replacement for — a public health plan.

Yesterday, Kent Conrad floated the idea that instead of having a robust public option in health care “exchanges,” we could instead implement rules designed to spur the creation of non-profit “co-ops” that would provide an alternative to private companies without government control. Or, of course, government’s ability to piggyback on Medicare and achieve cost controls. I’ll recommend Igor Volsky’s analysis of the problems facing health co-ops that legislation would have to overcome.

I’ll say that I think this is a pretty good idea, but it stands on its own merits completely apart from the merits of a public plan. In other words, there’s no reason we shouldn’t have co-ops and private plans and a real public plan. Medicine has always been a mix of state, non-profit, and for-profit actors and I think it’s worth broadening the mix of insurance options available to ordinary people.

That said, as an alternative to a public plan this simply doesn’t meet what I see as the main objective of a public plan. But beyond this, I think the larger issue is that you sort of can’t “compromise” around the core political issues here. Insurance companies object to the idea of a public plan because they don’t want to lose business. Anything you dream up that would cause insurance companies to lose business, they’ll object to. After all, what else are they going to do? But anything you dream up that doesn’t cause insurance companies to lose any business isn’t going to accomplish anything meaningful. Insofar as what’s really going on in the halls of congress is that members are trying to balance progressive pressure for a public plan with industry opposition to it, you’re going to keep banging your head against the reality that you can’t split the difference between “incumbents face a new strong competitor” and “incumbents don’t face a new strong competitor.” And incumbents really don’t want to face a new strong competitor—incumbents hate competitors!