Public option lite: What a Senate compromise on health care might look like.

How to fix health policy.
Oct. 7 2009 7:20 PM

Public Option Lite

What half a loaf might look like.

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Maria Cantwell. Click image to expand.
Maria Cantwell

The Senate finance committee has received a Congressional Budget Office estimate on its amended health-reform bill that improves its prospects for committee passage. According to the CBO, the bill would save $81 billion over 10 years (as opposed to the $49 billion the unamended version was projected to save) and would extend coverage to 29 million of the 45 million uninsured, just as the unamended version did. Still, there remains one problem: The finance bill, which could get an up-or-down committee vote as early as this week, does not include a public option, unlike the versions previously passed by the Senate health committee (text, summary) and by three committees in the House (unamended text, summary; the three House markups have not yet been blended together).

It remains possible that what Sen. Charles Schumer, D-N.Y., calls "some kind of public option" will be incorporated into the bill. But odds are this won't match even the watered-down versions approved by the four congressional committees that have advanced health reform thus far. It will be Public Option Lite. Two versions of POL have been kicking around for months; two newer and better versions of POL surfaced during the past week.

The two most familiar kinds of POL are plainly unacceptable. They are the nonprofit health care co-operatives proposed by Sen. Kent Conrad, D-N.D., and the trigger (or "safety-net fallback plan") proposed by Sen. Olympia Snowe, R-Maine. The Conrad proposal, which would cost $6 billion, was folded into the finance committee bill. The Snowe proposal was not, but it could come up on the Senate floor.

Having the federal government help health co-ops to compete with private health insurers is a bad idea because, as Sen. Jay Rockefeller points out, health co-operatives are "a dying business model for health insurance." Depending on how you define them, there are between four and seven health co-ops in business today, and these don't operate in a way that's appreciably different from private insurance companies.

Putting into the bill a trigger that would create a public option if affordable coverage remained unavailable to at least 5 percent of the population is a bad idea mainly because, as I've noted before ("Triggernometry"), legislative triggers almost never get pulled, especially when they're embedded in health care legislation. A further problem with Snowe's proposal is that the trigger wouldn't be national; it would be applied state-by-state, thereby weakening the public option's leverage in negotiating doctor and hospital fees and drug prices.

The new versions of POL, although a poor substitute for the real thing, are a significant step up from Conrad's and Snowe's offerings. They are the low-income state plan proposed by Sen. Maria Cantwell, D-Wash., and the state public option proposal by Sen. Tom Carper, D-Del. The Cantwell proposal, which would likely lower costs, was adopted as an amendment last week by the finance committee. The Carper proposal is still in the discussion stage.

Cantwell has said, "My proposal in no way substitutes a robust federal public option, which I will continue fighting for." And it isn't really a public option at all, because it does not involve the creation of a government health insurance program. Rather, it would give states the option of redirecting subsidies for the purchase of private health insurance on the insurance exchange. Instead, the state itself could negotiate with health insurers to provide health insurance to the uninsured, in effect substituting its own muscle to leverage volume discounts for the insurance exchange's principle of market competition. The population on whose behalf the state could bargain would be limited to those whose annual incomes were between 133 percent and 200 percent of the federal poverty level (that is, between about $29,000 and about $44,000 for a family of four). Cantwell estimates this group to represent about 75 percent of the uninsured.

The average health-insurance policy to be purchased through the health-insurance exchange is estimated to cost about $6,500, of which the income group affected by Cantwell's amendment could expect to pay somewhere between $300 and $2,000. Bypassing the health-insurance exchange could lower this group's costs, a finance committee aide told me, to somewhere between $250 and $800. (The estimate is based on the experience of Washington state's Basic Health plan, on which the Cantwell plan is closely modeled.) Under the Cantwell proposal, states could band together to negotiate with health insurers. The more states banded together, the larger the pool they'd be bargaining for. The larger the pool they bargained for, the larger the discount they could extract from private insurers—and the more this scheme would start to resemble a bona fide public option.

The only major shortcoming I see is that the Cantwell option demonstrates a little too starkly how superior a government-directed solution is to a market-based solution in expanding coverage while controlling costs. Why create a health insurance exchange at all? Single-payer, anyone?

The other new POL proposal seems a little more straightforward, though one can't know for sure because Carper has yet to go public. According to Carrie Budoff Brown in Politico, Carper would leave the decision about whether to create a public option to the states. Conrad, who voted against two versions of the public option in the finance committee, calls the Carper plan a "very constructive option," and Sen. Ben Nelson, D-Neb., who also opposes the public option, says he's warming to the idea. One drawback, noted by the New Republic's Jonathan Cohn, who has seen a rough outline of the plan, is that Carper would not permit states to set payments at Medicare rates. Then again, neither could Schumer's public option plan, and Rockefeller's (superior) version could do so only for two years. It isn't clear that Carper would allow states to band together to increase their market leverage, as Cantwell would. If the Carper plan did allow it, would Conrad and Nelson remain interested? Without the potential to scale up beyond state lines, state public options might not do a great job keeping costs down.

Cohn also notes that the Carper amendment may not achieve anything that Sen. Ron Wyden, D-Ore., didn't already achieve when he got finance committee chair Max Baucus to tuck into his chairman's mark a provision granting states a waiver to extend coverage and realize savings however they want, provided they meet the same benchmark predicted for the health insurance exchanges. That might make Cantwell's amendment superfluous, too. But Wyden's provision requires a waiver from the Health and Human Services secretary. The Cantwell and Carper proposals don't.

The Cantwell and Carper proposals are food for thought. That's more than you can say about Conrad's co-ops and Snowe's trigger.

Update, Oct. 8:  The Huffington Post's Sam Stein reports on an intriguing new variation on the Carper plan. Instead of allowing states the option to create a public option, the new version would allow states to optout of a public option. It's a clever application of Richard Thaler and Cass Sunstein's trendy Nudge theory, in which liberal ends are achieved by harnessing passivity and inertia, to health reform. Because the default position would be creation of a public option, and because passing up a public option would probably be an unpopular thing for a governor or state legislature to do, this version would likely cause many more states to opt in. That's what makes it a better plan. That's also what likely makes it a harder sell to centrist Democrats. Stein doesn't identify any who favor the idea.

E-mail Timothy Noah at chatterbox@slate.com.

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