The New ‘Public Option’ Compromise And How To Improve It

Sen. Ben Nelson (D-NE)Last night, Senate Democrats reached a deal to replace the opt-out public option in the Senate health care bill with a network of nonprofit insurers administered by the Office of Personnel Management (OPM)— the entity that runs the Federal Employees Health Benefits Program (FEHBP). Americans between the ages of 55 and 64 could also buy into the Medicare program before the exchanges become operational and enroll in Medicare from within an exchange.

Lawmakers have sent the details of the proposal to the Congressional Budget Office (CBO) for scoring and are hoping to officially unveil the plan early next week. Some more details:

– Nonprofit insurers administered and regulated by the OPM: If the entity acts as a prudent purchaser and only selects the most efficient nonprofits, the plans could provide quality care at lower costs and generate significant competition within the exchanges.

– Nonprofit insurers offer national plans: These plans would be regulated by new national standards and would not be subject to the political whims of the states. The national rules would act as a “floor” that states could build and improve on. Insurers might also be able to pull risk across the country and win greater leverage with providers.

– New insurance regulations: Insurers would be required to spend “at least 90 percent of premium money on medical care, rather than on administrative costs or profits.” This is up from 85 percent.

– A triggered public option: In the unlikely event that insurance companies don’t participate in the OPM-operated network of nonprofits, a national public plan — along the lines of what the House has offered — could be triggered.

The Medicare expansion is significant but could also become significantly expensive. “For the period between 2011 and 2014, when the exchanges do open, the Medicare option will not be subsidized–people will have to pay in without federal premium assistance.” “After the exchanges launch, the Medicare option would be offered in the exchanges, where people could pay into it with their subsidies.” Clinton era reforms sought to expand the Medicare program but were never able to provide enrollees with affordable premiums on an unsubsidized basis. At this point, it’s unknown how many Americans could afford to enroll in the Medicare program, but some back of the envelope estimates provided to the Wonk Room suggest that as many as 4 million Americans could join.

According to a CBO analysis of a similar Medicare buy-in for uninsured Americans between 62 and 64 — that group would have to pay a premium plus an administrative fee of 5 percent — “the annual premium for single coverage in 2011 would be about $7,600 (that figure includes the cost of Part D coverage).” The CBO assumed that the Medicare buy-in policy would increase outlays for Social Security retirement benefits “because the availability of the Medicare buy-in program would induce some people to retire sooner than they otherwise would have (because they would no longer need insurance from their employer).” Significantly, the buy-in could also extend the solvency of the Medicare trust fund by bringing in premium dollars from younger beneficiaries and reduce Medicare’s spending for those individuals after they turned 65.

Finally, the OPM-administered network of nonprofits may not be the robust public option reformers were hoping for, but prudent purchasing would guarantee that insurers operate with a low administrative overhead and provide coverage at very competitive prices. As the process moves forward, lawmakers could certainly build on the proposal (and encourage nonprofits to offer coverage at lower costs) by modifying the trigger to affordability levels or the growth of national health care expenditures (rather than number of nonprofits participating) and introducing a new trigger that would expand the buy-in eligibility age if national health care expenditures don’t decrease by a set amount over time.


The Wall Street Journal is reporting that “a proposal to expand eligibility for Medicaid beyond the increase already in the bill was dropped Tuesday, said people familiar with the negotiations. Instead, the Democratic negotiators agreed to a proposal that would extend the Children’s Health Insurance Program, a popular federal-state initiative that provides insurance to more than seven million children in low-income families. The current program is funded through 2013 and would be extended to 2015, these people said.”

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,Hospitals (and physician groups) are opposing the Medicare buy-in proposal:

Sources say the compromise would break the truce negotiated this summer by the White House, certain key lawmakers and the hospital industry under which the public plan would not have been tied to Medicare rates. The opposition from the industry was swift, blistering and expected, said various congressional sources. … Among the talking points FAH supplied: The buy-in policy would ‘crowd-out’ private insurance, would be controlled by CMS and would only pay Medicare rates. The FAH also suggested that members point to MedPAC, which has ‘documented negative and declining Medicare hospital margins for seven years.’”

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