To counter overwhelming Republican and conservative Democrat opposition to making a public plan part of health care reform, Sen. Kent Conrad (D-ND) is proposing co-operative insurance plans as an alternative. Ezra Klein of the Washington Post yesterday conducted an important interview with the plains state senator where he rooted his proposal in traditional progressivism (think rural and municipally-owned electric co-ops, which consistently have lower rates than surrounding private utilities).

The American Medical Association, in backtracking slightly from its opposition to the public plan, said that co-operatives or a public plan that operated like any other insurance company (rather than piggybacking on Medicare's administrative efficiencies and pricing power) would be acceptable.

Liberals  who've been pushing the public plan proposal should explore the co-operative idea. It holds promise, and could serve as an important wedge into delivery system reforms that will be crucial to holding down health care costs in the long run.

The core of the Senate legislative draft released earlier this week followed the Massachusetts universal insurance experiment. It would require everyone to buy insurance; it would force employers to make a small payment to a universal insurance fund if they didn't cover their employees; it would set up an exchange (called gateways in the bill) in every state to assure that every insurance plan meets minimum coverage criteria and there's no price discrimination based on pre-existing conditions (community rating) or outright rejection of costly patients (adverse selection).

A national public plan, endorsed by a majority of Democrats, and endorsed by President Obama, would ensure that there was a government-run option in every market in the country under the exchange/gateway model. If an employer didn't offer insurance or a person or family lost insurance through unemployment, that person/family could always turn to the public plan for coverage if they didn't like or couldn't find an acceptable private plan. The not-so-hidden agenda behind a national public plan (and the reason why the AMA and the insurance industry are so vehemently opposed to it) is that it could use its Medicare-like administrative efficiencies and purchasing clout to lower costs.

However, as anyone who has looked at the data knows, Medicare in the past several decades has been no more successful at holding down costs than private insurers, largely because it operates within the traditional fee-for-service model. A public plan might provide a one-time savings in its start-up phase through lower administrative fees. But if its administrators used the same fee-for-service payment system as Medicare, its costs would resume their upward march almost immediately.

That's why the co-operative idea is so intriguing. The legislation that establishes the 50 state-based gateway/exchanges could require that each state set up one or more non-profit cooperatives to serve as the default option for the uninsured, for small employers, or for anyone who wanted to be insured by that publicly-licensed entity. States could be given leeway in how to it could be structured.

Some states might opt for a traditional cooperative owned by its policy holders. That probably wouldn't do much to change the practice of medicine (it would all depend on how the managers of the co-op decided to set up its delivery system; if they simply replicated the insurance industry's health maintenance organization and preferred provider organization models, which use the fee-for-service paradigm, its unlikely they would be any more successful than the insurance industry is holding down costs or providing higher quality care).

But states could also be encouraged to set up non-profit group practices with salaried physicians working in teams under one roof. These co-ops could 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.

Public plan advocates have for the most part ignored the delivery system side of the health care reform debate. Though their slogans insist on "quality" as well as "access" and "affordability," the liberal groups and labor organizations who've pushed the public plan option have largely ignored the poor quality of so much of U.S. care that needlessly drives up costs.

The co-operative compromise offered by Sen. Conrad offers them and their allies in Congress an opportunity to get out front on the quality issue. As the price for their votes, they should insist that the newly-authorized co-operatives become vehicles for implementing significant health care delivery system reforms. High on that list should be replacing volume-driven, fee-for-service medicine with cooperatives organized as prepaid group practices working in teams in a salaried, non-profit setting.