Inconvenient Truths about the Public Option

[liberalpragmatist]

I expect I'll get some nasty responses with this, so let me state up front that I want a public option. And I have been calling my representatives and my senators, as well as the White House comment line to encourage one.

However, there are a lot of misconceptions about it and I think there needs to be some real discussion about what the public option is, as structured in the House and Senate HELP Committee bills, and what its relationship is to the overall reform effort.

For decades, Democrats (and liberals in general) have been divided over the best way to reform the American health care system. Many liberal Democrats and health policy reformers advocated a single-payer approach. The problem with single-payer, however, was that having adopted an employer-based system by accident, polls showed majorities of Americans wanted to keep their private coverage. So others advocated trying to build off of that structure or implement a "pay-or-play" scheme, whereby employers either had to provide coverage or pay into a fund that could then provide health care to those without it (either through a public plan or through subsidies for private insurance.) In 2004, all the major Democratic candidates for president, including Howard Dean, proposed incremental bills that would expand coverage and introduce insurance company regulations but largely preserve the employer-based system. Both Dean and Kerry proposed letting people buy into an insurance exchange modeled on the Federal Employees Health Benefits Plan (FEHBP), but neither proposed a public option.

In 2006, political scientist Jacob Hacker of U.C. Berkeley came up with the idea of combining these two approaches. Keep the employer system, he said, but create a regulated marketplace - an "exchange" - for those who didn't get insurance through work or didn't like the insurance they were offered at work. And, he said, include a publicly-administered plan modeled on Medicare. By linking with Medicare, such a plan could quickly acquire tens of millions of customers and exercise strong cost controls. Its size would allow it to negotiate low prices for drugs and medical procedures, and by linking it with Medicare (which already did that for medical procedures), it could accomplish dramatic savings.

The plan proved popular and the Hacker plan came to form the basis for the health care proposals of all three major Democratic presidential candidates. John Edwards, Hillary Clinton, and Barack Obama all proposed basically similar plans, the chief difference being Clinton and Edwards supported an individual mandate while Obama did not. In Congress, the Hacker plan proved popular as well, and even Max Baucus included a strong public option in his initial health care proposals last November.

Flash forward to today and the public plan has become probably the biggest controversy among Democrats. Republicans proved completely hostile to the idea and conservative Democrats, especially in the Senate, have been unwilling to support it. The White House has given hints it may drop the plan or implement it only with a "trigger," which has prompted howls that Obama has sold us out and that no reform that passes will be worth it without a public option.

What is the White House doing? I don't think they quite know. They may drop the public plan. They may not. It looks like there are some internal divisions and trial balloons galore. While I hardly think they're playing some genius 100-dimensional chess game, it could be that they're simply trying to get a bill off the Senate floor and to conference committee, where a public plan could be reinserted if it passes the House.

But is dropping the public plan at this point make-or-break when it comes to reform? Maybe not. Here's why.

The problem is that the public plans that have been included in the House and HELP Committee bills have already been watered down so much as to make them relatively insignificant. President Obama got in trouble a few weeks ago for calling the public option only a "small part" of health care reform, but at this point, he's arguably correct. A public plan as proposed by the Hacker plan would have been revolutionary. The public plan that survives (so far) is not. Since the House bill is more generous than the Senate HELP Committee bill, let's look at what the House bill's public plan looks like.

* Not available until 2013

* Not open to everyone - it would only be open to the long-term unemployed, the self-employed, and employees of small businesses. These are the people eligible to purchase plans on the insurance exchange, where the public plan would sit as an option. The CBO estimates that the whole exchange would only have 20 million members by 2019, with about 1/3 choosing the public option. If you got insurance through your employer, you could not join the public plan or any plan in the exchange, even out of your own pocket.

* Not centrally-funded; it would sit within the exchange, which would have a national administrator overseeing all the plans (including the private ones), but though it would get startup funds from the government, it would have to be self-supporting, meaning it would need to fund itself via premiums. And it would need to advertise.

* Does not use Medicare rates; the House bill would let the public plan use Medicare rates at the outset and would have access to providers in the Medicare network, although providers could opt out. After the initial years, however, the public plan would need to negotiate its own rates, as other private insurers do.

This plan is a worthy feature, but given how limited it is, its effects are fairly small. Yes, it could provide somewhat lower prices. But not dramatically so compared to other plans on the exchange, because it would have to be entirely self-funded and would have to negotiate its own prices after the initial period. And because it wouldn't be open to everyone, it would not have substantial market power; the CBO estimates it would have 9-10 million members nationwide by 2019.

This public plan does set a benchmark that other plans have to match. However, the exchange would already have a basic standard benefits package that every insurer would have to meet. And the private plans on the exchange have some cost controls as well, due to their oversight by a central administrator. (Theoretically that could be expanded in the future too, such that the exchange administrator could negotiate prices for drugs and procedures for even the private plans.)

The result is that we're now in a pitched battle that to me seems more about symbolism at this point. The public plan as structured in the House bill really is a fairly minor part of the reform. Most of us on this board would be ineligible for it. The expansion of Medicaid, the insurance company regulations, the subsidies, the exchange, and the basic benefits package are all arguably more significant and would impact most of us far more than the weak public plan envisioned by the House bill. The true "strong" public option as envisioned in the Hacker plan died long ago.

The reason many progressive members of Congress are fighting so hard to include it is because they hope that both the insurance exchange and the public plan can be expanded such that everyone can buy into them (see below). And that exposes the fact that nearly everyone believes that even if the best possible bill is passed, it will need to be revisited in coming years to exert greater cost controls and build on the structure established in this round. However, if we have to revisit the bill in 3-4 years anyway, and if the public plan won't be open to everyone without another round of legislation, then what's the point of establishing it? It is argued that it's easier to expand an existing program than create a new one, but if you're going to wait to do that anyway, then why not just open up existing plans like Medicare or the VA at that point?

If you truly believe that there is no meaningful health care reform without a strong, Medicare-like public option (something I personally don't believe is true*), then the battle is already lost. At this stage, the difference between a bill with a public plan and without one is very small.

(* Universal health care systems come in vastly different shapes. Canada, Scandinavian countries, and some Asian countries use a single-payer system. Britain uses a nationalized, single-payer/single-provider system. Germany and France use heavily-regulated, nominally independent sickness funds to provide basic care. Some countries used mixed public/private systems. Both The Netherlands and Switzerland use entirely private systems. Singapore doesn't use insurance at all, requiring mandatory savings and universal health savings accounts with government-funded catastrophic care.

Now, the Dutch and the Swiss have very different systems than the U.S. The government negotiates prices for drugs and services and dictates a strong basic standard package that each insurer much provide. Though the insurers fought these systems tooth-and-nail, they've adapted, such that they now provide basic services as non-profits and make money off supplemental coverage.

That's why, in theory, you could achieve the features of the public plan through other means. You could, for example, strengthen the basic minimum package offered through the exchange, such that its pricing and premiums are set by the government and it becomes a government-directed benchmark that is merely administered by the private insurers, who would function as contract administrators.

Now, even with the public option intact, neither the House nor HELP bills envision anything this comprehensive. Which is why, public plan or no public plan, they would need to be expanded down the road. I still think they're worth passing, public plan or no public plan, because of the fact that they would provide coverage to everyone and end insurance company abuses such as rescission and discrimination against people with preexisting conditions, etc., and because, with the exchange, they provide a structure than could be molded into a coherent system)

Also, added on update...

(** My sense behind the Progressive Caucus in the House' line of thinking is that (a) they feel they've compromised so much already that they can't stomach losing the public plan as it currently stands, even if it's relatively limited. Plus, they may be planning to offer amendments on the House floor to strengthen it, although how those would fare in House-Senate negotiations is anyone's guess.)

[Jennicut]

1. Best post I have seen all day.

What I don't get is what we all fighting over, anyway, if the public option really is just a small "sliver" of the bill? And why do the blue dogs refuse to support even a weakened, small public option?

[liberalpragmatist]

2. Because the public option has become a symbol to both sides

In their hopes for a single-payer system, many Democrats are pressing for the public option to become one (even though, as of now it isn't.) And the right-wing is also promoting the idea that it's a single-payer system.

And since the Blue Dogs are cowards who are afraid of their own shadows and because they'd rather cater to their constituents' uninformed rantings than lead and educate, they can't support even this version.

Frankly, I really hope the White House doesn't drop the public option - for political reasons, mostly. I do think a public option will do some good, but as I pointed it, it's quite minor at this stage. However, despite my attempt to do my part, I doubt this message will get very far. The public option has become such a key feature for the left that any attempt to drop it will be enormously divisive. I know they're trying to get Olympia Snowe's vote, but at this stage, isn't it easier to arm-twist Snowe into supporting the existing, weak public option, than trying to cajole 60+ progressive House members to support a plan without one (and in the process infuriating the base)?

[Jennicut]

6. I agree...politically he will be in trouble if he drops it even if its not a big part of the bill

[denem]

14. Superb. K&R.

[grantcart]

3. very intelligent post

What it misses IMHO is the real appeal of the Public Option - it represents a structurally different alternative.

Even though the initial pool that can join will be limited, its performance will be very transparent and just like surveys of who likes what cars, the public option will be able to establish that there is a huge gap between consumer satisfaction between the private market and the public option.

Also we have the Kucinich ammendment. It allows states to move beyond the public option and have single payer on a state wide basis.

This is how Canada adopted single payer - province by province.

And even though the Kucinich ammendment will probably not be in the original bill it will gain more and more support. Once established as an alternative there will be more and more pressure to expand it. Having it is a huge step, ammending it is a small step. It will save people money, give them more choice and in the end their will be a competition politically (like other countries) between the parties to see who can improve it the most.

Public Option is a gateway option for Single Payer.

[liberalpragmatist]

4. I hope so

Because I think a single-payer system is the simplest system. But again, my point is that if any public option will need legislative expansion to become something similar to single-payer, then why go through the whole step of making one? Why not just try to expand Medicare in the next round? In fact, if we do have to drop the public option in the end, I would say a better compromise than a trigger would be expanding Medicare downward - i.e. eligible at 55. Then, next time you expand the exchange, also expand Medicare downwards again, or make it opt-in for the rest.

I also like the Kucinich amendment, btw.

[grantcart]

7. Or maybe the "Medicare buy in option"

I think that the reason that they have stayed away from referring to Medicare is that the Republicans would instantly say that they are trying to expand Medicare and that it would bankrupt the system and scare the seniors.

By having it as a completely different option it doesn't threaten the perception that seniors might have that their health care is in jeapordy of being watered down by others joining a system that has financial weakness.

[HughMoran]

5. Good expansion on the O/P

The last sentence says it all.

[JeffR]

8. Thank you for making a very thoughtul contribution to what has become

basically an excruciating, cringe-worthy facsimile of a discussion on this issue here.

I applaud you.

[liberalpragmatist]

9. Thank you - nt

[grantcart]

10. I haven't had this much teeth gnashing since I asked Michael Scott

from Dunder Mifflin to come to the regional office and hold a diversity seminar and then conduct my marriage ceremony.

[eridani]

11. Simple incremental answer short of single payer

Let buying into Medicare BE THE PUBLIC OPTION!

[Phoebe Loosinhouse]

12. Great cogent, well-written and knowledgable post. K&R!

I agree with so much you have written.

1. I agree that what is called "public option" in any bill so far is the shell of a shell of one.

I agree that while I am a strong advocate of single payer or "true" public option or Medicare for all, that the Dutch and Swedish models do provide a possible alternative BUT

Everything I have read indicates that President Obama has already negated the chance for these structures as well with his "negotiations" with both the insurance and pharmeceutical industries which got very little and gave very much to them. Apparently, in exchange for an 80 billion contribution (over 10 years!) towards lowering costs, Pharma will be protected from any further government price controls/negotiation. I posted a thread here yesterday about that which sank like a stone. It works out to be an 8% reduction! We currently pay TWICE as much for a market basket of thirty common pharmeceuticals (I posted that study yesterday) Does anyone think that an 8% price reduction amounts to any kind of real negotiation with the pharma industry? Of course not! It's a complete insult to our intelligence and it is prima facie evidence to me that once again, our government is working for the corporations and against the interests of the people. In negotiations with the insurance industry, our superstar hacks have apparently agreed to pushing prior condition exclusions and recission (cancellations) out to 2013 as well and in exchange the insurers can up their co-pays to 30%! (I wrote about that in a thread called "You know all those so-called people who love their health insurance?) WE ARE PAYING THEM TO STOP FRAUDULENT AND IMMORAL PRACTICES that should be legislated away without any input from them whatsoever. We are protecting their profits at the expense and even DEATH of American citizens. Once again, prima facie evidence of the ill-intent of our White House and Reps.

I have to conclude that once again, we have been screwed well and thoroughly. We will have to be content for the crumbs tossed from the corporate AND legislative carriages as they drive over the rabble.

[flpoljunkie]

13. You would probably agree with Ezra Klein's post on 'what kind of compromise he could support'

(It makes a lot of sense, as well. Emphasis mine.)

The Structuralist Club

In my chat today, a lot of the questions were some variant of "what compromise could you support?" I could accept a lot of compromises. I could accept pretty much any compromise that makes people's lives better. But to actually merit support, the bar needs to be a bit higher.

Put simply, it's the structure, stupid. The health-care system is like a house. It's easy to add the furnishings later. It's not that hard to upgrade the kitchen, or redo the trim, or re-carpet the floors. Some of that might be expensive, but it's not actually hard. But it's really, really hard to add another room, or rip out all the wiring, or build a bathroom that wasn't previously included.

So too with health care. There's a basic structure that's been present in all of the bills, and for good reason. It's a structure that a lot of good and smart people have put a lot of time and energy into thinking through. It creates a universal system through an individual mandate and an employer mandate, and makes that system affordable and dependable through a mix of subsidies, insurance market reforms, and out-of-pocket protections. It creates health insurance exchanges that individuals and companies can choose to enter if they prove more efficient and consumer-friendly, and that offer an array of different insurance options, some public, some private.

If the cost of the bill has to come down somewhat, there are ways to preserve that structure. For example, you can't have an individual mandate without sufficient subsidies, but if the benefit plan starts out a bit stingy, then the subsidies could be pretty affordable. If that proved insufficient, the basic plan — and the subsidies — could grow over time, as has happened in Medicare. If the public plan isn't strong enough, or present, in the first incarnation of the exchanges, it would be a relatively simple matter to add it into the system at a later date.

But if you begin ripping out parts of that structure, you're doing damage to the bill that you might not be able to repair. If you're not willing to have enough subsidies for the individual mandate to work, then the insurance market regulations won't work either (insurers can't offer everyone the same price — or at least not an affordable price — if healthy, young people hang back from the system). If the exchanges are hobbled or can't grow, then they can never become the alternative we need, and there will be no existing market structure for a public plan even if one is introduced.

Once removed, it's not clear that these pieces can be put back. That's particularly true given that health-care reform that is missing key components isn't likely to work very well, and if it doesn't work very well, there's no reason to believe that voters will give Democrats another shot after a few years of experience.

It's become popular of late to talk about how reform is a process and programs grow. But they grow best, and most easily, upwards, not outward. Adding a prescription drug benefit to Medicare took 40 years. But creating a generous hospital benefit was a steady and dependable process. A good reform plan will take that lesson to heart: It will put the basic structure in place so future improvements are straightforward. A bad plan will sacrifice that structure, and just add some subsidies to the existing system. And that's how I'll be evaluating the administration's proposal: How much of the basic structure does it preserve?

By Ezra Klein
Posted at 2:12 PM ET, 09/ 3/2009

http://voices.washingtonpost.com/ezra-klein/2009/09/the_structuralist_club.html

[Born_A_Truman]

15. Medicare didn't happen overnight either...

1945 Harry Truman sends a message to Congress asking for
legislation establishing a national health insurance plan.

Two decades of debate ensue, with opponents warning of the
dangers of "socialized medicine."

By the end of Truman's administration, he had backed off
from a plan for universal coverage, but administrators in
the Social Security system and others had begun to focus
on the idea of a program aimed at insuring Social Security
beneficiaries.

July 30, 1965 Medicare and its companion program Medicaid, (which
insures indigent recipients), are signed into law by
President Lyndon Johnson as part of his "Great Society."

Ex-president Truman is the first to enroll in Medicare.

Medicare Part B premium is $3 per month.

1972 Disabled persons under age 65 and those with end-stage
renal disease become eligible for coverage.

Services expand to include some chiropractic services,
speech therapy and physical therapy.

Payments to HMOs are authorized.

Supplemental Security Income (SSI) program is established
for the elderly and disabled poor. SSI recipients are
automatically eligible for Medicaid.

1982 Hospice benefits are added on a temporary basis.

1983 Change from "reasonable cost" to prospective payment
system based on diagnosis-related groups for hospital
inpatient services begins.

Most federal civilian employees become covered.

1984 Remaining federal employees, including President, members
of Congress and federal judiciary become covered.

1986 Hospice benefits become permanent.

1988 Major overhaul of Medicare benefits is enacted aimed at
providing coverage for catastrophic illness and
prescription drugs.

Coverage is added for routine mammography.

1989 Catastrophic coverage and prescription drug coverage are
repealed.

Coverage is added for pap smears.

1992 Physician services payments are based on fee schedule.

1997 Medicare+Choice is enacted under the Balanced Budget Act.
Some provisions prove to be so financially restrictive
when regulations are unveiled that Congress is forced to
revisit the issue in 1999.

1999 Congress "refines" Medicare+Choice and relaxes some
Medicare funding restrictions under the Balanced Budget
Refinement Act of 1999.

2000 Medicare+Choice Final Rule takes effect.

Prospective payment systems for outpatient services and
home health agencies take effect.

Medicare Part B premium is $45.40 per month.

[amborin]

16. K & R

[SpartanDem]

17. Wrong about the not being open everyone part

You just have drop your employers health care it's right in the bill

SEC. 311. HEALTH COVERAGE PARTICIPATION REQUIREMENTS.

An employer meets the requirements of this section if such employer does all of the following:

(1) OFFER OF COVERAGE- The employer offers each employee individual and family coverage under a qualified health benefits plan (or under a current employment-based health plan (within the meaning of section 102(b))) in accordance with section 312.

(2) CONTRIBUTION TOWARDS COVERAGE- If an employee accepts such offer of coverage, the employer makes timely contributions towards such coverage in accordance with section 312.

(3) CONTRIBUTION IN LIEU OF COVERAGE- Beginning with Y2, if an employee declines such offer but otherwise obtains coverage in an Exchange-participating health benefits plan (other than by reason of being covered by family coverage as a spouse or dependent of the primary insured), the employer shall make a timely contribution to the Health Insurance Exchange with respect to each such employee in accordance with section 313.

[liberalpragmatist]

18. Interesting, as that conflicts with what I've read elsewhere

I will have to investigate that further. But my understanding when the bill was revealed was that the exchange is limited to people who do not otherwise obtain coverage from their employers.

ON EDIT: Okay, someone should correct me if I'm wrong, but it appears that what the bill allows is for some individuals to qualify for opting out of employer coverage and into the exchange, although such individuals would have to meet an affordability test.

[SpartanDem]

19. I've read through the parts of bill dealing with the exchange

and other than first year there I didn't see any limitations on individuals who could participate.

[Junkdrawer]

20. I read this as employers are responsible to contribute...

to an employee's Exchange-participating health benefits plan IF they obtained such coverage in the first place.

That doesn't mean it's open to everyone.

[dccrossman]

21. Good detailed review

At this point, even with the limited Public Option, Dems have to keep it in for PR reasons. The perception is that we have a large majority that we can't keep together.

That apparent weakness will be capitalized on in 2010. We need to be able to trumpet that we were able to get the Public Option through, and increase Medicare funding.