Taking just a moment to keep score, we now know quite a bit about three rather different health care draft bills. If reform efforts are to succeed through the regular legislative process (i.e. not through the budget reconciliation process) those proposals will have to be merged into one, and key players will have to make a number of compromises along the way.
Significantly–both on policy and political grounds–the government insurance option proposals run the gamut from the House bill, which contemplates a robust public insurance option comparable to Medicare, to the Senate Finance Committee bill, which scraps the idea of a national government-run plan in favor of a series of regional co-ops.
If bipartisanship does win the day, the action’s in the Senate Finance Committee, so it’s important not to assume this proposal will disappear just as the “trigger” proposal disappeared. But it’s also worth remembering that the co-op proposal doesn’t in practice or in spirit amount to a public option. The stated idea behind the public option is that, forced to compete with a national, not-for-profit, government-run system, private insurers will have to dramatically cut the wasteful practices that drive up the price of care. Regional co-ops would not be able to serve this function.
But it’s also worth recalling that not all public options are created equal.
To oversimplify for a moment, a public option could, as in the House bill, be allowed to pay out at Medicare rates, which beat private insurance rates cost-wise by about 25 percent. Or it could be forced to operate, for all intents and purposes, as a non-profit insurance company–on a level playing field with private industry. The difference is crucial and, depending on other provisions in the bill, could be a key force in shaping America’s future health care system.
Under the latter version of the public option, savings on health expenditures will fall out of administrative waste in private industry–they’ll be competing with a huge, non-profit entity that doesn’t have to pay private-industry salaries. Under the former, the savings will be more drastic, as private insurers have to contend with the fact that the public plan can use its buying power to lower the overall cost of care.
That difference is obviously important, but it’s even more important when you factor in the possibility that private insurance companies will try to game the system. The term of art here is adverse selection: Aware that the public plan can’t turn consumers away, and keenly aware that injured and ill consumers cost a lot of money, private insurers can, at least in theory, tailor and market their plans to low risk consumers, sloughing off the sick into the public option, and inflating the cost of that plan.
The effects of this can be offset if the final legislation includes a provision that forces those that insure the healthy to subsidize those that insure the unhealthy (what’s known as risk adjustment). But if it does not, then the savings and efficiencies that the public option is intended to create will be diminished. And if that’s the case, then the robustness of the public option–the degree to which it’s allowed to force down costs–could determine whether consumers are left with an appealing government option, or a structurally compromised one.
Which do you suppose industry and its allies in Congress would prefer?
