Update: Sen Conrad says he doesn’t care what health reform groups think. "They don’t have a vote." — via Ryan Grimm/HuffPo.

Yesterday saw the release of the next draft of the Kennedy/HELP Committee health reform bill and the release of a set of principles by House leaders that seem more or less consistent with where Kennedy and Obama are headed. Meanwhile, Ron Wyden doesn’t like the "trigger," and Mary Landrieu flip-flopped on the public option (h/t Yglesias).

In addition, the NYT coverage describes a proposal by Sen. Kent Conrad to create member-owned "co-ops" to provide insurance for small businesses and individuals not covered in other ways. (h/t to Think Progress and Igor Volsky for the Conrad video)

The usual suspects seem interested in this latest device to substitute for — or to kill — a government-sponsored public health insurance option. But this is not a acceptable substitute, because it doesn’t address the important reasons we need a public plan open to everyone.

The Times’ Robert Pears, who’s done a decent job of covering the reform efforts, explains what Conrad is proposing:

The House bill, as outlined on Tuesday, would allow people to enroll in a government-run health insurance plan similar to Medicare.

By contrast, some Senate Democrats are trying to limit the scope of any new government plan, in the hope they can persuade some Republicans to vote for their legislation.

Senator Kent Conrad, Democrat of North Dakota, suggested that the public plan might take the form of an insurance cooperative, owned and operated for the benefit of its members — individuals and businesses with fewer than 10 employees.

This proposal, floated as a compromise, seemed to intrigue Republicans who were familiar with cooperatives that market electric power, telephone service, milk, wheat and other commodities.

“The strength of this proposal is that it accomplishes much of what those who want a public option are calling for — that is, something to compete with private for-profit insurance companies,” Mr. Conrad said. “On the other hand, it meets the objections of many Republicans and some Democrats as well. The co-op is not government-controlled.”

So, there’s some misdirection going on here. The purpose of a strong public plan option, as President Obama emphasized, is not just to cover small business employees; it’s also to give all consumers a real choice and force the private insurers to shape up across the board:

I strongly believe that Americans should have the choice of a public health insurance option operating alongside private plans. This will give them a better range of choices, make the health care market more competitive, and keep insurance companies honest.

Conrad’s proposal doesn’t meet any of the objectives. It’s true that the private health insurance model creates special problems for small business, and employer mandates would exacerbate those issues, as the Times explained in this article.

An obvious solution to that problem would to liberate individual health coverage from the employer-provided insurance model, as a public health insurance (or single payer) framework would do. Conrad’s proposal is different; he wants to create another quasi-private insurance model just for this select group, without providing anyone else with choice or pressuring the industry to shape up.

By restricting his co-ops to small businesses and otherwise uncovered individuals, Conrad effectively shields the vast bulk of the private industry from competition and denies choice to everyone else. The private industry would maintain its non-competitive monopoly over the bulk of Americans under 65, while consumers would be forced to purchase insurance from the (too) few insurers operating in their area. Within that framework, there’s no reason to believe that the co-ops would be better situated to provide affordable coverage even for the limited group Conrad hopes to reach.

As the Times article notes, the co-op model has some value in electricity and other sectors, but it’s important to remember why the New Deal used this approach. There were vast rural areas that simply didn’t have electricity at the time. An electricity system, with large power plants and transmission lines, is a capital-intensive industry that would have been very costly for sparsely-populated rural areas. If we wanted to serve everyone in remote areas, we had to create a means to subsidize the expansion of the transmission and distribution system.

By contrast, urban areas have for nearly 100 years been served by strongly regulated monopolies, either investor owned utilities (state regulation) or municipal/public owned utilities (local board regulation). In the absence of a competitive paradigm for the electricity sector (and even with it), you need strong regulation of the monopoly elements to avoid poor service, insufficient supply, service discrimination, and prices higher than they should be. Sound familiar? There is as yet no comparable market regulation for equally essential health care services, even though many parts of the health care industry seem to be highly concentrated and non-competitive.

I don’t have a problem if Congress wants to authorize member-owned co-ops to help consumers in particular circumstances. But no one should be confused that this is an acceptable substitute for a robust public health option open to everyone that keeps the pressure on private insurers to clean up their acts or be displaced.

More on the co-op concept:
Igor Volsky/Wonkroom, Conrad Proposes Co-ops to Replace Public Plan
Matthew Yglesias, Health Care Co-ops
The Hill, House reform principles
The Hill, Obama Restates Commitment to Schedule