What Is the Public Option?

The public option has become the central front in the fight for health care reform. It’s become a litmus test on the left and the right, with the House Progressive Caucus saying they won’t vote for a reform bill that omits it, and with Republicans generally united against it, even one with a delay or a trigger that would kick its implementation down the road. It’s been discussed almost constantly since February 2007 when John Edwards made it part of his health care plan, with both Barack Obama and Hillary Clinton soon following suit. It’s become a proxy fight for health care reform in general. But for all that, many people are still confused as to what it is, who would have access to it, or why it might be a good idea in the first place.

It is not, in and of itself, the entirety of the health care reform proposal in Congress, or what President Obama proposed on the campaign trail as a fix for our broken health care system. Reform encompasses everything we need to do to finally begin controlling our health care costs, expanding access and improving quality.  All three of these goals are the focus of the House bill (HR 3200) and the Senate Health, Education, Labor and Pensions Committee.

The moving parts of this bill covers an incredibly wide gamut of issues, from developing new doctors and new nurses, particularly in primary care; to giving tax credits to small businesses in order to allow them to afford benefits for their employees; to filling in the “doughnut hole” in the Medicare prescription drug program to provide cheaper drugs to seniors; to creating regulation or prevent or curb the most abusive practices of the insurance industry.

The House bill is 1,018 pages long and the whole package is estimated to cost $1 trillion over 10 years -- all or most of which is already paid for by savings and new revenue earmarked in the bill. But the whole package is not “the public plan” or the “public option.” Of the 1,018 pages, only 12 of them deal with the establishment of a public health insurance option.

For those who don’t have insurance provided by an employer, or for small businesses who want to buy a plan at an affordable rate, the bills would create a Health Exchange – a one-stop shopping market for health care. Any private insurance company could offer a plan in the Exchange, but they’d have to adhere to certain standards:

• There would be a minimum set of benefits for all plans, no one could be turned down on the basis of pre-existing conditions.
• There would be guaranteed renewal of policies (no dumping a customer because they got sick.)
• You would not be charged a different price because of gender, health status or type of employment.
• You would be charged a different rate for age, but it would be more restricted than the Wild West of premium rates today.
• If you couldn’t afford the full premium and you made less than 400% of the federal poverty line (about $43,000 for an individual or $88,000 for a family of 4), you’d get a subsidy so your premium would be pegged to a fixed percentage of your income.
• Everyone would have a cap on out-of-pocket expenses. And finally,
• All of the information and presentation would be transparent -- you would be able to compare standard benefits across companies to find the one that works for you.

It’ll be a massive improvement over our fragmented and abusive private insurance market. But the Exchange is not the public option either. The House bill has 56 pages about the Health Exchange, but only 12 of them are the public option.

If you have 30-40 million people in one giant pool of customers, with many of their premiums subsidized by the government, this is a pretty great deal for private insurance. Sure, there are new regulations, but they’re not being asked to fundamentally change their business practices. The “game” of creating profit by finding ways to attract healthy customers who won’t need that much care and to reduce the amount of care they pay for existing customers goes on. The game has no incentives for operating more efficiently, with less administrative waste or executive compensation, or for delivering more quality care.

So how do you change the game? The solution favored by the president and many others is to introduce a new player into the market with different incentives. As a government-run insurance plan, it won’t have to make a profit, won’t have to pay a CEO’s salary, and will have lower administrative costs (currently, administrative costs are 3% of Medicare, 7% of Medicaid and 15-30% of private insurance). It would have incentives towards quality, presuming you’re a long-term customer because the government will eventually be paying for your Medicare costs. It would have an incentive to use its bargaining power to achieve lower costs -- savings it would pass on as lower premiums. And it would force private insurance to compete on those terms, or lose customers. It would change the game.

It would only be offered by the Exchange – one option competing with dozens of for-profit insurance plans, each obeying by the exact same rules and regulations, and delivering the same benefits. No one would be forced into it. In fact, the Congressional Budget Office estimates only 10-12 million people would be in it. It would not cost more to have an Exchange with a public option than it would without it -- in fact, because it brings costs down, it costs more to do reform without it!  It's not the totality of health reform.  But even this small a change could be the difference between an enabling giveaway to the private insurance industry, and an unleashing of competitive forces that would encourage public and private plans to improve or become obsolete -- to the benefit of us all.

For more on the public option, read the surprisingly non-egghead Professor Jacob Hacker, “HEALTHY COMPETITION: How to Structure Public Health Insurance Plan Choice to Ensure Risk-Sharing, Cost Control, and Quality Improvement”

(Photo credit:  http://www.flickr.com/photos/six27/ / CC BY 2.0)