OPM “Alternative” Unlikely To Have Any Value

This newest “alternative” to the public option, which is nothing like a public option, sounds (from what information is available) to be pretty much useless. All indications are that it is nothing more than just another exchange run by the Office of Personnel Management (OPM). The idea of creating exchanges to give individuals and small businesses the same deals as large business is already in the bill.

Slightly regulated insurance marketplaces like the exchanges offer only limited benefits. They allow individuals to get together and have the equivalent cost benefit of being part of a large employer insurance plan. On the individual level they see some minor savings, and much of the savings comes from a reduction in overhead.

What exchanges don't do is systematically control cost. The 8 million-person federal employee health benefit (FEHB) exchange has premiums and premium growth rates basically identical to any large employer. As a serious cost control mechanism, they are basically a failure. In fact, the proven cost control failure of the FEHB run by OPM was one of Jacob Hacker's best arguments for the need for a public option.

The Senate bill already creates exchanges which are meant to give be the same benefit as being part of the FEHB. In fact, it creates potentially over 100 exchanges. There will be an individual market exchange and small business market (SHOP) exchange in each state. It also allows for smaller regional exchanges within states, and the creation of multi-state exchanges.

The potential benefits of creating another exchange in addition to these exchanges (or inside these exchanges) seems dubious. The new OPM exchange sounds like it might be better regulated (like all the exchanges should have been from the get go), and the OPM does at least have experience running this type of program. With people able to buy insurance completely outside any exchange, in the state-based exchange, possibly the regional exchanges, and now the OPM exchange, I don't see how you get enough people to choose the OPM-run program to give it the customer base it needs to demand concessions from the private insurance companies.

Here you run into a chicken-and-egg problem. The OPM has a captive customer base for the FEHB program. Because it has so many potential customers it can make some demands of the insurance companies as a prerequisite for access to the program. This new OPM exchange would not have a captive customer base. It would have nothing to offer the insurers, so it would have little power to make demands. The private insurance companies will still have access to all the same customers through the new state-based exchanges or outside the exchanges. Until the OPM exchange can make demands of the private insurance companies, it can't offer slightly lower premiums, and if it can't offer slightly lower premiums, it will not attract enough people to give it the negotiating power it needs to lower premiums. Since the overall system lacks strong enough risk adjustment mechanisms, the new OPM exchange also has the potential of collapsing because it would possibly become a dumping ground for sicker customers.

Let us assume the OPM exchange does manage to attract enough customers to work and does not become a dumping ground. All indications are that it would be the same failure as the FEHB, which has not been able to rein in our out-of-control health care costs. It does not have a new public option to compete with the traditional private insurance companies that have failed us. It would not change how our broken health care system works, and so, would not save use from the looming finance destruction that could cause.

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