Can House Dems Save The Public Option By Offering States Seed Money To Establish Their Own Plans?

During yesterday’s press conference about the Democrats’ efforts to reconcile the House and Senate health care bills, House Speaker Nancy Pelosi (D-CA) seemed to concede that the final health care bill will not include a national public health insurance option. Pelosi stressed that there are “other ways” to “increase competition” and hold “insurance companies accountable.” “We will have what we need to hold the insurance companies accountable,” she said. “I contend that whatever we have coming out of this bill will hold them accountable and they’ll be crying out for a public option one of these days.” Watch it:

A national public health insurance option is unlikely to muster 60 votes in the Senate, but House Democrats could insist on including a provision in the final health care bill that provides start-up funds to states that choose to create state-based public options. The current Senate bill allows states to independently finance such programs. Offering government seed money, however, could entice more states to take up the venture and prove politically valuable to liberal Democrats facing a backlash for abandoning the provision. States like New York, California and Washington would likely establish such plans and their successes may motivate conservative states to also adopt the measure.

The state-based approach was first introduced in March 2009 by the New America Foundation’s Len Nichols. Nichols proposed the creation of 50 different-state based public options that would be operated by politically appointed managers and owned by the government. The plans would reimburse providers at market rates and compete on a completely level playing field with private insurers. The proposal was never publicly considered at the time, but a watered down version — that passes muster with Sens. Joe Lieberman’s (I-CT) and Ben Nelson’s (D-NE) — may be the last hope for including some kind of public plan in the final bill. For instance, lawmakers may have to adopt a broad definition for what constitutes a ‘public plan’ and eschew the ‘government owned’ language or simply expand the definition of co-ops, which already receive government seed money in the Senate legislation.

Democrats could also achieve some of the goals of the public plan by aggressively regulating health insurers. As Rep. Henry Waxman (D-CA) suggested Tuesday, “It’s going to be difficult to have a public option, but if there’s not going to be a public option, we’d better have a lot of restrictions on abuses by insurance companies,” Waxman said. “If we have to do it through greater regulation, that’s how we’re going to accomplish the goal.”