Reid Announces Opt-Out Public Option, But What Kind Of Plan Would States Opt-Out Of?

This afternoon, Senate Majority Leader Harry Reid (D-NV) announced that the merged Senate health bill would establish a national public option that allows states to opt out of the plan by 2014. Reid did not indicate that he had 60 votes in support of the opt-out, but said that he would not submit competing public option compromises to the Congressional Budget Office. The answer suggests that the Senate would not use the trigger or any other compromise as an alternative if the opt-out measure fails to obtain the 60 votes needed for cloture.

Reid said that the final legislation will also provide seed money for states to establish consumer driven cooperatives:

As we’ve gone through this process I’ve concluded — with the support of the White House, Senators Dodd and Baucus — that the best way to move forward is to include a public option with the opt out option for states. Under this concept, states will be able to determine whether the public option works well for them and will have the ability to opt out if they so chose….We’ve spent countless hours in the last few days in consultation with Senators who have shown a general desire to reform the health care system and I believe there is a strong consensus to move forward in this direction.

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The opt-out compromise, initially floated by Sen. Tom Carper (D-DE), is loosely modeled on Medicaid, which originally allowed states to “opt-out” of the program and today enjoys the participation of all 50 states. Supporters of the plan believe that if the public option proves itself in states where it’s functional, then legislators from conservatives states would be hard pressed to exempt their states from the program. After all, why reject an option that offers lower premiums and saves the state billions in health care costs? Rhetoric about a ‘government-takeover’ of health care may sound good on television, but it loses its appeal when you’re trying to balance your books.


But whether or not the public option will actually lower health care costs will depend on how it’s structured and how it pays providers. The public option has to be large enough to sway large provider groups to lower health care costs and initiate delivery system reforms.

So what are the states opting out of? Below are two basic options:

A national plan that pays 5% above Medicare rates: A robust public option that initially reimburses providers at 5% above Medicare rates and strongly encourages all Medicare doctors to participate, was originally part of the House bill. This kind of plan would take advantage of Medicare rates, providers, efficiencies and administrative simplifications. According to the CBO, a robust public option could save $110B/10yrs, lower premiums by 10%. A second alternative would allow the public option to reimburse at higher than Medicare rates but could trigger the lower Medicare reimbursements if costs increased. This plan could also initiate greater delivery and payment reforms.

A national public plan that negotiates payment rates with providers: A so-called level playing field public plan that reimburses providers at market rates would take advantage of Medicare efficiencies and administrative simplifications, but would not piggy-back off of Medicare-established reimbursements or provider reach. This kind of plan was part of the HELP bill. According to the CBO, the option would save $25B/10yrs but would not lower premiums within the exchange. This plan could also initiate greater delivery and payment reforms.

POLITICO is reporting that currently, Reid “has between 56 and 57 votes for the opt-out, which is being pushed by Sen. Charles Schumer, according to Democratic aides. A public option with a delayed “trigger” — supported by the White House and Maine Republican Sen. Olympia Snowe — has between 58 and 59 backers.” Reid dismissed competing public option proposals, telling reporters “We hope that Olympia will come back, she has worked hard, she is a very good legislator. I’m disappointed that the one issue, the public option, has been something that that’s frightened her.”


Of course, the other possibility — less likely given Reid’s reluctance to ask the CBO to score the proposal — is to combine the opt-out public option with a trigger — ensuring that states could only opt out of the public option if the private market offers meaningful and affordable coverage. Any opt-out proposal should also provide for a simple ‘opt-back-in process’ (mandating that state legislatures vote on the opt out every year, for instance.)


It should also be noted that 2014 may not be long enough for states to examine the effectiveness of the option. If Congress doesn’t extend the opt-out date, they need to develop a simple opt-back-in process.


,Press Secretary Robert Gibbs issued this statement:

[President Obama is] also pleased that the Senate has decided to include a public option for health coverage, in this case with an allowance for states to opt out. As he said to Congress and the nation in September, he supports the public option because it has the potential to play an essential role in holding insurance companies accountable through choice and competition.


,Sen. Jay Rockefeller (D-WV), a strong supporter of the robust public option, expresses his support for the opt-out:

An opt-out clause would protect the public option, and would help secure the necessary votes to pass health care reform, without compromising on the type of coverage or level of affordability. This will still save money and provide a real public option for people, and I am glad Leader Reid is moving forward with this strong health care reform agenda.


,Sen. Chris Dodd (D-CT) also supports the opt-out:

“I fought for a strong public option — in the HELP Committee and in this merger process — because it is the best way to keep costs low and insurance companies honest,” said Dodd. “Majority Leader Reid has made a bold and right choice to endorse the HELP Committee public option, along with a provision allowing states to opt out.”


,Sen. Olympia Snowe (R-ME) is “deeply disappointed with the Majority Leader’s decision to include a public option as the focus of the legislation”:

“I am deeply disappointed with the Majority Leader’s decision to include a public option as the focus of the legislation. I still believe that a fallback, safety net plan, to be triggered and available immediately in states where insurance companies fail to offer plans that meet the standards of affordability, could have been the road toward achieving a broader bipartisan consensus in the Senate.