Wise Compromise

Our View: By Dropping The Public Option From Their Health Reform Proposal, Senate Democrats May Get The Competitive Market They Want Without The Ugly Debate

December 10, 2009

Make no mistake, the public health insurance option Democrats have been pushing since the beginning of the current reform debate is a good idea. In most states, there is little competition among private insurers, and establishing a new, nonprofit, nonsubsidized national plan would have provided it without excessive disruption to the existing system of private insurance. Because of limitations on enrollment, the public option would never have amounted to more than a small fraction of the health insurance market, but by dint of its nationwide availability, it would have been large enough to negotiate lower prices from health care providers and drive down the costs of care.

Even so, it's probably a good thing that Senate Majority Leader Harry Reid has facilitated a compromise among liberal and conservative Democrats that would jettison the public option. For what was always a relatively small component of the health reform effort, the public option had taken on an outsized role in the debate, with some Democrats insisting no bill without it was worth passing and Republicans claiming it was the first step toward socialized medicine. In truth, the public option was never more than a means to an end, and if by getting rid of it the Senate can rally support for broader reforms while ensuring competition through other means, all the better.

Details about the compromise are still emerging - Senator Reid declined to give the specifics until the Congressional Budget Office has a chance to evaluate its cost, and the deal isn't quite done yet - but what is known so far sounds promising. Rather than a government-chartered public option, the Office of Personnel Management, which runs the health plans for federal employees, would set up a low-cost insurance plan to be managed by private, nonprofit entities. Plans would be available in all states on the insurance exchanges created as part of health reform legislation. In case that doesn't work, the legislation would likely include some sort of trigger mechanism to create a public option.

As a further measure to expand health care access, senators are now considering extending eligibility for Medicare to people ages 55-64, though they would likely have to pay higher rates than older enrollees. Depending on how it's structured, such a plan could actually shore up Medicare's finances by adding younger, healthier people to the risk pool, though an analysis of a previous, similar proposal noted that it could hurt Social Security by encouraging some people to retire early.

Another element of the deal would require health insurance companies to spend 90 percent of revenue on actual medical care, effectively limiting administrative costs and profit margins. The reform legislation that passed the House of Representatives has a similar provision, though its threshold is 85 percent.

Is this as good as a full-fledged public option? That depends on how you look at it. It's not as good as a public option with broad eligibility and the ability to pay Medicare rates for health care services - such a system would have a strong downward effect on costs. But it's probably at least as good as the watered-down public option that the Senate had previously been considering. That would have enrolled at most a few million people, would have had to negotiate its own rates with providers and would have included a state-by-state opt-out provision.

But the bigger picture is that there are much more important elements of health reform than the public option. The reform bill would prevent insurance companies from denying coverage based on pre-existing conditions. It would provide subsidies that would help extend coverage to tens of millions of people who now lack insurance. And it would set up an insurance exchange that would make it easier for small-business owners to provide coverage or for people to keep their coverage if they become unemployed or switch jobs.

If removing the public option and the politically charged debate that accompanies it moves a comprehensive health reform bill closer to passage in the Senate, then good riddance.

Readers respond

I am hoping against hope that the obstructionists now will not stand in the way of rational measures like no lifetime benefit caps, no increase in premiums for being a woman, no denials for pre-existing conditions. The public option, if it had passed, would have started out cheaper than the other plans, but it too eventually would have faced the pressure of rising costs.

A watered-down public option would not have achieved the competition desired to keep private insurers in check.

A keen watcher of reform

I really don't understand the positive attitude so many people are having at the demise of the public option. The public option was the reform. Without it, what we are getting is a health insurance industry stimulus package. That's not what our country needs.

Sean Tully

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