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A guide to the public option compromises in the Senate

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There are three "compromise" public options currently being considered in the U.S. Senate (and yes, I know many argue that the public option is itself a compromise, and there's something to that). Ben Nelson is advocating one. Olympia Snowe is behind another. Jay Rockefeller is talking up a third. Herewith, a guide for the perplexed:

The "trigger" option: Identified with Snowe (interview here), the trigger would call a public option into being in states where there weren't a certain number of affordable insurance options available to a certain percentage of consumers shopping on the exchange. As you might imagine, "certain number," "affordable" and "certain percentage" are contentious terms here. Snowe's original proposal called for the public option to trigger if, after accounting for subsidies, there weren't two or more options available to 95 percent of residents at less than "3 percent of [adjusted gross income] at 133 percent of the Federal Poverty Level, to 13 percent at 300 percent and above."

The state "opt-in" option: First proposed by Sen. Tom Carper (interview here), this proposal would allow states to create their own public options for their own exchanges. California, for instance, could decide it wanted a public option, and Alabama could decide it didn't want one, and both could have their way. The downside to this compromise is that many states are very small, so their public options would be quite weak. The upside is that if a state entered into an agreement with other states, you could have Pennsylvania's public option being sold on, say, Delaware's market. Ben Nelson has been talking this up.

The national "opt-out" option: This is Sen. Chuck Schumer's modification of Carper's proposal, and it's attracted some kind words from Rockefeller. Schumer's vision is to have a national public option that states can opt out of if they choose. In other words, the administration would be national in scale, but Alabama could decide against offering the public option on their state's exchange. The downside to this is that some states won't have access to the public option. The upside is that the national option would have the strength to potentially succeed, and if it did prove able to offer lower costs and higher quality, it's hard to imagine even conservative states denying their residents access to it for very long.

The politics of this are changing by the day, but my sense is that Snowe's trigger has fallen out of favor, and the moderates are now rallying around Carper's compromise while the liberals are putting their shoulder behind Schumer's proposal.

Photo credit: Mark Ralston/Getty Images

By Ezra Klein  |  October 22, 2009; 11:02 AM ET
Categories:  Health Reform  
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Comments

I don't understand what all the fuss is about the inclusion/exclusion/negotiated rates/Medicare rates is about the public option. I think a public option at Medicare+5 rates has the ability to lower costs 10-20 percent for more affluent customers, which is certainly nice, but for low and middle-income customers the savings from the subsidies will overtake any savings from the public option.

Here's my numerical calculation: Alan and Jane Smith have two children, and have a family income of $80K/yr. Based on the current bills, they will have to pay $8,800-$9,600 (11-12 percent premium cap) before receiving a subsidy. Now Suppose a private plan costs $14,000, which doesn't seem unreasonable with the 2:1 community rating. Do I think a public plan with the same generosity will cost under $9,600? I don't. I think it will save the taxpayers at most (and that's being wildly optimistic) $14,000 * 20%, or $2,800, which is nice, but it won't save the Smith's anything as $14,000 - $2,800 > $9,600.

In other words, based on my mathematical example, the higher the income, an the less coverage a person purchases, the more he/she will save because of the public option. This is nice. But is it's absence worth keeping the Smiths and millions of other uninsured families one illness from bankruptcy? I'm not sold on that. That's just how I feel about the legislation.

I think it would be better for progressives to turn their attention to the following issues:

1. Whether or not a family can afford the premium (individual mandate penalty, subsidies -- premium caps)
2. Whether or not a family can afford the deductibles and co-pays (individual mandate penalty, subsidies and minimum actuarial value)
3. Whether or not older adults will be able to afford the premium and cost-sharing (individual mandate, community rating)
4. Whether or not the rules on the Exchange will do enough to prevent insurance companies from cherry-picking healthy people (risk-adjustment, community rating, minimum benefits package, tier structure, individual mandate)
5. Whether or not employees of medium-sized and large companies have access to the plans on the Exchange
6. Whether or not plans on the Exchange will be affordable (risk selection of employers who drop coverage, and dump their employees on the Exchange)

These questions -- more than whether or not a public option exists in the Exchange -- will determine the bill's long-term-political fate.

Posted by: BradGabel2002 | October 22, 2009 11:13 AM | Report abuse

In the "opt-out" version, would states that opt out be able to have their own, 1-state-only, public option as another option to avoiding a public option entirely?

Posted by: JonathanTE | October 22, 2009 11:20 AM | Report abuse

Brad,

The public option lowers the overall cost to the government. If nothing else, that leaves more for subsidies. One reason the Baucus proposal was so stingy with subsidies to everyday people was the desire to keep the cost to government below a certain level without the cost control benefit of a competitive market. The public option helps fix that in a fiscally conservative way.

Posted by: jefft1225 | October 22, 2009 11:26 AM | Report abuse

Brad,

the problem is that nothing in your post mentions anything about the cost drivers of care and how they get under control. But don't feel bad, most of the legislation doesn't either. We can continue to mask the problem with subsidies and public options but until we actually resolve the elephant in the room (COST) then all of this is smoke and mirrors. A shell game for Democrats.

Posted by: visionbrkr | October 22, 2009 11:39 AM | Report abuse

Except jefft,

Is the public option's absence really worth turning your back on all the people who desperately need relief and have only their government to turn? I'm not sold on that. That's my point about the public option.

I agree that a sloppy job on some of the other provisions of the bill would make it worth turning your backs on the most vulnerable. But not the public option. It's one of the few areas that is easy to compromise -- the other area being the investment in prevention.

Posted by: BradGabel2002 | October 22, 2009 11:42 AM | Report abuse

I can see a useful compromise that combines the state opt-in & the national opt-out.

First, for the state opt-in, allow states to offer their Medicaid, SCHIP or other health insurance programs on the exchanges to people who aren't income-eligible for them, on a 'level playing field' basis (the purchasers get whatever federal subsidies they qualify for through the exchanges, but no more than that - between the federal subsidy & their own payments, they'd pay their own way). This would offer people on Medicaid & SCHIP a way to retain their coverage if they lose eligibility, give states a way to increase the market share & purchasing power of their insurance programs, and help ensure that there are low-cost options available that private insurers would have to compete with.

Second, for the national opt-out, simply offer a Medicare buy-in option through the exchanges to people age 50 and higher, and give the exchanges the option to offer it to younger purchasers if there aren't enough affordable options available. (I suppose you could even incorporate a trigger if you wanted to, i.e. based on some index of affordability if the index falls below some threshold in a given year, then the exchange would have the option to lower the age threshold for Medicare buy-in.)

I sort of agree w/ Brad that there are other important issues to focus on besides this, but that doesn't mean this issue's unimportant, it just means the Dems should try to strike a compromise on it soon.

Posted by: tomwoods | October 22, 2009 12:29 PM | Report abuse

Several thoughts:

You are looking at year to year trends. One of the most significant benefits of the exchange won't show up there: lower cost of doing business. A well-run echange can significantly reduce the use of brokers/agents and lower cost by 1-2%. a poorly run exchange will eat up those savings with its own administrative costs.

Also, when you talk about the need for size with the public plan you overlook two things: the local nature of health care delivery and the fact that population density matters more than the total population of a state.

People don't like to go far for their healthcare, and so a health plan doesn't need a national presence to have a strong market share in a state or sub-state region. It is local market share that gives an insurer negotiating leverage on rates.

As for population size vs density, consider that it is a lot harder to create an adequate network to compete with the local BCBS in North Dakota than in Delaware or Rhode Island. There might only be one doctor in 50 miles and one hospital in 100 miles in much of ND so you really need to include a higher percentage of all providers there to have a viable network than you do in more densely populated small states on the east coast. That also gives providers more leverage.

Economies of scale for administration still apply accross the board, of course.

Posted by: jdhalv | October 22, 2009 1:01 PM | Report abuse

Would the state-run public options be funded by feds or by the states?

If they're state-funded then aren't they virtually the same as the failed high-risk pools?

Posted by: NS12345 | October 22, 2009 1:32 PM | Report abuse

Do the states have the financial means to finance state public options. The answer is no.

The best option is the national option with an opt-out. Let the poor socio-economic states opt out and we would see who would have the last laugh!!!

Posted by: ameys1msncom | October 22, 2009 1:50 PM | Report abuse

In the national public option with state-by-state opt-out, would the residents of a state that opted out still have to pay federal taxes to fund the public option? What about someone who works and pays taxes in two states, one that has opted out and one that has opted in?

This seems unfair on the surface. On the other hand, we already pay plenty of taxes to pay for national programs that benefit us indirectly. E.g. Ports and interstate highways make transportation of goods cheaper.

Posted by: billkarwin | October 22, 2009 3:05 PM | Report abuse

How about letting taxpayers opt out.

Posted by: dirty_ed | October 22, 2009 9:13 PM | Report abuse

One of the more critical issues of a 'public' option is how exactly it is worded. Two of the original DOA versions had language that would have allowed an attorney to be paid (yes, by the government) to force a health provider or hospital to provide health care worth several hundred thousands to anyone stepping off a plane. Obviously, the taxpayers would pick that up, including court costs, because the option wording allowed this under the Fourteenth Amendment's 'due process' clause. A state or even community opt-out would prevent the misuse of this clause if the provider was non-profit. It is noticeable that the exact wording of the options are not available for inspection even though the 'due process' mechanism could cost the taxpayers 15 billion a year.

Posted by: arjay1 | October 23, 2009 6:05 PM | Report abuse

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