Did CBO Determine the HELP Public Plan?

Today, draft language of the Senate HELP Committee's public plan was leaked to Politico. Overall, the HELP public plan is very similar to the “weak but workable” or “level playing field” public plan promoted by Senator Chuck Schumer. I suspect the “strong” Medicare-based public plan may have been dropped primarily for political and not economic reasons. But it is possible that the Congressional Budget Office (CBO) had a large role in deciding the structure of the HELP Committee's public option for two important reasons.

The first reason is optics. Back on May 27, the CBO released a briefing outlining how they would define possible changes to our health care system. They stated what proposals would and would not reflect on the federal budget.

In CBO’s view, the budgetary treatment of a public plan would depend critically on who bore the financial risk. If the federal government stood behind the plan financially, then its expenditures should be considered federal outlays, and the payments collected for premiums should be considered as either federal revenues or as offsets to outlays.

And,

Specifically, if a public plan dominated an exchange-based market, then that component of the health insurance system would, in practice, be largely governmental. In that case, all of the transactions of the exchange should properly be considered part of the budget.

It is very possible the CBO would predict that a strong public plan would “dominate” the exchange and therefore decide to classify the entire exchange as part of the budget. While this would not effect the cost of the bill, it would dramatically change the optics. It could led to the CBO declaring health care reform a massive tens of trillions of dollars expansion of the federal budget.

The other possible reason is about cost reduction. If the CBO is unwilling/unable to quantify how the competition of the public plan would drive down the price of private insurance, a “strong” public plan would make reform legislation dramatically cheaper than a “weak” plan. If the CBO concludes that any national public option would do an equally good job of bringing down the cost of private insurance, the savings difference will be much less. (Federal subsidies will be based on the average of the three cheapest plans offered. Reducing the price of all plans could be more important to overall savings than just offering one cheaper plan.)

In the end, I think the CBO scoring will be the biggest single event in the whole reform debate. If the CBO says a specific public plan will reduce the cost of reform by hundreds of billions, I think it becomes politically unstoppable. If a public option is declared a massive expansion of government or found to do little to control cost, it will be in serious jeopardy. The CBO scoring could result in the debate over the public option shifting from an ideological battle to a fiscal one.