New Report: Triggered Public Option Is Better Than The Existing Public Option Provisions

A new report from the Urban Institute argues that a “strong” public option — one that is triggered in the event that overall growth in national health spending exceeds a pre-determined target — may do more to control health care spending than the public option proposals offered in existing legislation:

In the absence of enough political support to pass a strong public option at this time, a “trigger” for a strong public option should be considered for inclusion in health reform legislation whether or not a weak public option is included as a political compromise. Even the threat of such a plan being triggered offers the potential to affect market dynamics between insurers and providers.

The report says that the Senate and House’s public option provisions (which require the public plan to independently negotiate rates with providers) hold little hope of lowering costs in areas of the country with high provider concentration. In areas where hospitals have “too strong a market presence to be excluded from insurer networks,” hospitals could dictate prices, stripping the public plan of its ability to negotiate cheaper rates, the report warns. According to a 2006 study, 86% “of large metropolitan areas were considered to have highly concentrated hospital markets.”

Policymakers can overcome the political challenges of enacting a strong public option — one which compels Medicare providers to participate and establishes Medicare-like reimbursement rates — by placing the plan behind a trigger mechanism which “would allow private insurers the opportunity to show that they can provide affordable coverage under the new health reform rules.”

The report recognizes that “many proponents of a strong public option oppose a compromise relying on triggers because they believe that triggers would never be pulled” and suggests that structuring the trigger around overall growth in national health spending — rather than affordability — would make it more likely that a public plan would be established in the absence of meaningful cost containment.

“Opponents of a public option could argue to override the trigger by claiming that factors other than health plans’ inability to manage spending caused the lack of affordability,” the report warns. A “triggering event tied to affordability” could subject the public option “to the same controversy as now, with opponents arguing that other policies should be adopted instead of a public option and increasing the likelihood of congressional pre-emption of the trigger.”

To avoid these pitfalls, policymakers should consider basing the trigger on “overall growth in national health spending.” “An advantage of using growth in national health expenditures (NHE) is that the data are regularly and consistently reported and are directly related to the purpose of a public option — to create competition with private insurers to reduce health spending growth,” the report notes.

Cross-posted on The Wonk Room.