Earlier today, Sen. Kent Conrad, the North Dakota Democrat who chairs the Senate Budget Committee, introduced a "potential compromise" on the public plan: A system of federally-chartered co-ops that could offer a non-profit alternative to the for-profit insurance industry. In this telling, the co-ops preserve the central feature of the public plan -- they're a competitor to the traditional insurance industry -- but are free from the baggage of government control.

I spoke to the Senator this evening about the co-op model, and he said a few things that surprised me. First, his search for an alternative was on behalf of the G-11 -- the key Senate powerbrokers on health care. Second, it proceeded from the premise that the public plan doesn't have the votes. All Republicans are opposed and, according to Conrad, "at least three Democrats." And third, he thinks reconciliation is basically out as a viable option for comprehensive health reform. A lightly edited transcript follows.

Who would charter these? What is the process? Do I go over to my local health insurance exchange and put in an application?

The way co-ops typically are formed, people who feel they're not appropriately served, or not served at all, band together. They form an org, elect a board, hire people to do the work, pool their money, and the organization goes forward. These cooperative entities would provide their contracts through the exchange just like everyone else, be subject to the same rules as everyone else, in terms of reserve requirements, in terms of what kind of contracts they could offer. People would go to their exchange, they'd see the option, and if they liked it, they sign up, and then they become one of the members, because every member is an owner. And they have elections and that elected board chooses leadership.

Would there be regulations on how many of these there would have to be in each state?

We've not contemplated having that in the health care reform law, but there is clearly an economic requirement in order to have the leverage to negotiate with providers to get competitive rates, you need greater bulk. That's were we believe we need 500,000 lives to be competitive.

That's probably one of the two major items of discussion still remaining here. They're various options for consideration if you will. I offered the G-11 group three models. One is state-based, so every state has one. I don't think that works frankly. in states like mine, the pool wouldn't be big enough. The second would be a national entity. That's probably too limiting as well.

What you probably need is a national entity with state affiliates, and the further flexibility so those states can have regional pools. So in our part of the country, you might have North Dakota, South Dakota, Montana, and Wyoming go together. Out east you might have Maine, Vermont, and New Hampshire together. We're consulting with experts tomorrow about that.

Where did this idea come from? I've done a fair amount of health care reporting, and this is the first I've heard of it.

I guess it came out of conversations in my office after we were asked to see if we couldn't come up with some way of bridging this chasm. Part of it is that we're so used to cooperative structures in my state. They were begun by progressives, they came out of the progressive era. And they're so successful in our state. So I can't really say we came up with some brand new idea. We just thought about our own experience.