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Democrats Weigh the Calculus of Public Health Insurance

Sen. Max Baucus (D-Mont.) is drafting a plan without a public option.
Sen. Max Baucus (D-Mont.) is drafting a plan without a public option. (By Melina Mara -- The Washington Post)
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The economists in this camp say a public option would not underprice insurers so aggressively as to drive them out of business -- political pressures from medical providers would restrain Congress just as it is restrained today from limiting Medicare rates too much. Private insurers could still compete on service and would benefit from their deep ties in local markets.

But the public plan would produce savings, they say. The Congressional Budget Office estimates that the House's public option would save $150 billion over the first 10 years. Without it, these economists say, the government would have to save money by cutting subsidies to the point that people would be unable to afford the coverage that they're required to buy.

"If you say we're not going to fight over this, then where is the cost containment?" Holahan asked.

Other reformers see it the other way around: Universal health care is too important, they say, to risk it foundering on the public option. They say the critical element is the exchange -- with or without a public option, it will create competition among private insurers. Tough new regulations will ban practices such as denying people coverage because of preexisting conditions.

These experts note that Massachusetts has achieved near-universal coverage without a real public option. And they say that if costs continue to rise to the point where subsidies fail to make coverage affordable, the government could require the insurers participating in the exchange to change the way they reimburse providers to encourage more cost-effective care.

A public plan would be welcome, people in this camp agree. But its impact would be limited. The House plan envisions only about 10 million people joining the public option at the outset, because access to the exchange would at least initially be limited to about 30 million uninsured and small-business employees to prevent the unraveling of employer-based insurance. And the option's pricing powers would be limited by political pressures against driving too hard a bargain on providers. Better to pass an otherwise good bill than stake everything on a weak public option.

"I would put up a bold front of wanting a public option and at the end of the day would say, Mr. Grassley, Mr. Enzi, in the name of unity and Republican support, I will give it up if you climb on board," said Henry Aaron of the Brookings Institution, referring to two key GOP senators. "I'm not denying a public option would force quickly changes that might otherwise take longer. But insisting on a public plan reduces the likelihood there's going to be any plan."

Public plan proponents counter that imposing cost controls via exchange regulations would be more intrusive than the competition offered by a public option. They say that even with tougher standards, insurers will seek to avoid covering the sick, creating the need for a public option with rules in place that would reward any plan that was covering a higher-risk pool of patients.

They also dispute that Massachusetts is an argument against a public option -- before its reforms, it had well-regulated insurers and few uninsured, and several of its lower-priced options are functioning as quasi-public plans.

For now, the debate is playing out on the margins. Conservative Blue Dog Democrats pushed last week in one House committee to delink the public plan from Medicare rates and instead require the government to negotiate rates with providers, which liberal House members say would result in higher rates and smaller savings. Without a Medicare linkage, "it's a gutted public option with no real chance of success," said Rep. Raul M. Grijalva (D-Ariz.), co-chairman of the Progressive Caucus.

Joining the resistance against the public option have been providers held up as models by Obama, such as the Mayo Clinic, which argues that rates linked to Medicare would be too low and fail to reward cost-effective care. Reformers say that the Medicare link is needed at the outset to get the new public option off the ground quickly but that the House bill would allow the government to set public option reimbursements in a way that rewards high-quality care instead of on a fee-for-service basis. But Mayo chief executive Denis Cortese said the government should try such payment reforms with Medicare first.

"I don't see why they have to create a new public plan to start paying for value," he said.

Meanwhile, Conrad and his Finance Committee colleagues are hashing out their proposal for the co-ops, which would be seeded with $6 billion in federal money. Critics say the co-ops would lack the leverage to take on insurers, and they question who will run them.

Jacob Hacker, a Yale University political scientist who helped develop the public option concept, calls co-ops a "fig leaf to cover up a lack of commitment to a public plan" and notes that Oppenheimer analysts predicted that co-ops are "destined to fail from the moment of creation."

He holds out the possibility that Baucus will give up on crafting a bipartisan deal, leaving Democrats to push for existing proposals with a public option with the confidence that they can pick off just enough Republican votes in the end.

"If [a public option] does not happen, it will not be because Republicans are opposed," he said. "It will fall apart if there's not sufficient pressure from Democrats."

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