New Public Option Compromise: An Exchange Of Nonprofit Plans Within An Exchange Of Private Plans

Sen. Ben Nelson (D-NE)

Sen. Ben Nelson (D-NE)

A group of 10 senators are considering a new compromise that would replace the opt-out public option in the Senate health care bill with an exchange for non-profit insurers administered by the Office of Personnel Management — the entity that runs the Federal Employees Health Benefits Program (FEHBP). “It would be any number of national not-for-profits that would compete nationally and they would take the place – more conservative members hope – of the public option. They would be in states and be running a kind of lookalike to a public option,” Sen. Sherrod Brown (D-OH) tells Politico:

The nonprofit insurance companies would “go to OPM and say I want to compete and then you show them you’ve got standing to compete,” Brown said. Existing insurance companies could participate as long as their plan is not-for-profit, he said. Lincoln said she, as well as Snowe and Majority Whip Dick Durbin (D-Ill.), has advocated a similar proposal in the past for small businesses. The Office of Personnel Management has been effective in negotiating affordable premiums and generous benefits in the Federal Employee Health Benefits Plan – and could presumably do the same under this expanded program, Lincoln said. “I just think it’s a good idea,” Lincoln said. “I’ve always thought it was a good idea for quite some time now, for years, because it does utilize what we utilize as federal employees, which is volume and a good negotiator with private industry.”

While the details of the new plan are still unclear, policy makers are strongly hinting at establishing a new exchange of nonprofits within the already existing state-based exchanges. OPM could presumably lower costs by negotiate premiums and benefits with the nonprofit private insurers participating in the new exchange, bargaining with plans for lower bids and excluding plans that do not offer good value and cost-effectiveness. Despite Lincoln’s claims, however, OPM has not been “effective” at lowering costs in the past. From 1985 to 2002, the growth rate for FEHBP is virtually identical to that for private health insurance, averaging 7.3%, compared with 5.8% for Medicare.

If the purpose of the public plan is to build an alternative to the private health insurance model that relies on the Medicare’s infrastructure and reach to lower costs, institute delivery system reforms and provide real competition, then this compromise is a long way from that goal. As Jacob Hacker asks over at The Treatment, “How is that going to provide real pressure on private insurers in a consolidated insurance market in which nonprofit plans already have a large presence (and often act little differently from for-profit plans)?”

Reportedly, Sens. Harkin, Rockefeller, Feingold, Pryor, Lincoln, Brown, Carper, Ben Nelson, Schumer, and Lieberman are taking part in the negotiations. Democrats are also working to bring Sen. Olympia Snowe back to the negotiating table.