It’s How the Co-Ops Get Started That Matters

NYTimes blogger Timothy Egan wrote up a post yesterday about the value of co-ops in general and suggesting that all the negative rhetoric towards them should be quelled a bit. He’s right in the sense that attacks on co-ops in the form of senseless “death panel” critiques don’t really help the opposition argument gain supporters (though it probably does increase the resolve of many who are already opposed). But he seems to be ignoring a key point that I don’t really see getting discussed in the value of co-ops: sure, a consumer owned competitor to the current companies may be a somewhat viable model, but the point is not necessarily about whether it would work as much as it is about the source of funding for the co-op.

It is significant that, to start a non-profit health insurance co-op, the government would be kicking in $3 to $6 billion in starter cash. It may not be the HHS running like they might a public option, but it is dishonest to argue the government wouldn’t be involved at all. Egan mentions this, but only to say it is “a mere week in the life of bank bailouts.” Frankly, appealing to a program that shouldn’t have been started in the first place isn’t very convincing.

In addition, appealing to the bailouts brings up an important point—look at all of the problems we’ve dealt with the past year with the government meddling in the businesses of banks. The government just doesn’t have the right incentives and has too much political baggage weighing down its decisions to effectively manage the banks. The same would happen with a supposedly privately owned and managed co-op. And lets not just ignore the problem of Fannie and Freddie as government-sponsored enterprises running themselves on the (accurate) assumption that the government would cover any major losses if it came down to crunch time. We want to create more quasi-government organizations?

My colleague Ron Bailey over at Reason magazine has a great piece on co-ops published yesterday as well that is worth reading for anyone confused about co-ops vs. a public option and what the pit falls are. Ultimately, the co-op might be better than a public option in the spectrum of bad ideas, but the fact is that the government should be focused on creating incentives for there to be more price competition in the provision of health care to bring down prices rather than try to get coverage for the unnecessarily high prices from taxpayer supported government organizations that compete with the private sector.

Anthony Randazzo

Anthony Randazzo is director of economic research for Reason Foundation, a nonprofit think tank advancing free minds and free markets. His research portfolio is regularly evolving, and he maintains a wide interest in economic policy at both a domestic and international level.

Randazzo is also managing director of the Pension Integrity Project, which provides technical assistance to public sector retirement system stakeholders who are seeking to prevent pension plan insolvency. His research focus on the national public sector pension crisis has a dual focus of identifying the systemic factors that cause public officials to underfund pension obligations as well as studying the processes by which meaningful pension reform can be accomplished. Within the Project he leads the analytics team that develops independent, third party actuarial analysis to stakeholders considering changes to public sector retirement systems.

In addition, Randazzo writes about the moral foundations of economic theory, and is currently developing research on the ways that the moral intuitions of economists influence their substantive findings on topics like income inequality, immigration, or labor policy.

Randazzo's work has been featured in The Wall Street Journal, Forbes, Barron's, Bloomberg View, The Washington Times, The Detroit News, Chicago Sun-Times, Orange-County Register, RealClearMarkets, Reason magazine and various other online and print publications.

During his tenure at Reason he has published substantive research on housing finance, financial services regulation, and various other aspects of economic policy at the federal level. And he has written regularly on labor economics, tax policy, privatization, and Turkish-U.S. political and economic issues.

Randazzo has also testified before numerous state and local legislative bodies on pension policy matters, as well as before the House Financial Services Committee on topics related to housing policy and government-sponsored enterprises.

He holds a multidisciplinary M.A. in behavioral political economy from New York University.

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