61 Most Important Words In The HELP Health Care Bill

The goal of many reformers is for the majority of Americans to get health insurance from something similar to the Federal Employee Health Benefit Program. It is an exchange where federal employees choose between several good insurance plans which meet a strict set of minimum criteria.

While this may be a good idea, it is politically impossible because it would cause the CBO to conclude that "millions of Americans would lose their current health insurance". (Even though the vast majority would get a better insurance plan of their own choosing, that is one of the many finer points that will be lost in the political attacks against reform.)

As a result, the HELP committee wanted to write a bill that would allow most Americans to get their health insurance via an exchange without the Congressional Budget Office (CBO) saying as such. They wrote the bill so that only individuals without insurance and employees of "qualified employers" can buy health insurance in the exchange. In the bill the "default" definition of a "qualified employer" is a business with 10 employees or fewer.

Using this default definition, the CBO determined that ten years from now only 27 million Americans will get their insurance through the exchange. But there is an very important clause dealing with the definition of a “qualified employer”: It gives states and the Secretary of Health and Human Services the power to change how few employees a “qualified employer” must have.

According to the HELP Bill, “the term 'qualified employer' means an employer that … meets criteria (including criteria regarding the size of a qualified employer) established by such State; or” by the Secretary of HHS defined as

NUMBER OF EMPLOYEES.— (i) ESTABLISHMENT.—The Secretary may by regulation establish the number of employees described in subparagraph (A)(ii)(II)(aa).
(ii) DEFAULT.—If the Secretary does not establish the number described in subparagraph (A)(ii)(II)(aa), such numbers shall be deemed to be 10.

I have no doubt that once the exchanges are up and running successfully that number will dramatically be scaled upward by individual states and/or the Secretary of HHS. While the CBO claims only 27 million Americans will get health insurance through the exchange 10 years from now, if things go as planned that number will probably be closer to 127 million. This is a fairly brilliant piece of CBO slight of hand.

Public Option Genie Will Soon Be Out of the Bottle

Very soon, the CBO will release a score for the House Democrats' draft health care legislation. Their bill contains a relatively strong self-financing public option. My research has led me to conclude that including a strong public option will result in the bill being scored several hundred billion dollars cheaper.

The House bill is very similar to the draft legislation from the Senate HELP committee. Both fix the size of credits, which would be given to help individuals buy health insurance, to the "reference premium". In both, the "reference premium" is the average of the three cheapest available plans. I explained previously how offering a much cheaper public option would reduce the cost of the "reference premium" and dramatically lower the amount in subsidies the federal government will need to pay out.

While the two bills differ slightly in who is eligible for subsidies, (House is people between 133%-400% of FPL, Senate HELP is 150%-500%) the general effect of including a strong public option should be the same. The strong public option could easily reduce a bill's score by $100-$300 billion.

Once the savings of a strong public option is scored, it should dramatically change the nature of the debate. Already an overwhelming number of Americans support the public option. Once it is clear it will also save the country hundreds of billions, it will be hard to argue against it on vague ideological grounds. Members of the Democratic leadership, who once thought they would be able to use the public option as a bargaining chip, will quickly find out that including a public plan is the only way to receive significant grassroots support.

Soon the public plan genie will be out of the bottle, and it is going to be very difficult to put it back in.

Public Option Could Save $250 Billion

Now that I have some official numbers from the CBO I can do a better analysis of just how much the public option would save the taxpayer. Since in the HELP committee's bill, the size of government subsidies given to individuals to buy health insurance is based on the average of the three cheapest plans (the “reference premium”), offering a cheaper plan would reduce the size of the subsidies given out.

I'm assume, as is widely agreed, the public option would be the cheapest plan offered. If there was a strong public option (basically a full Medicare opt-in) it would be about 30% cheaper. If there was a weak public option (the Schumer plan) it would be about 10% cheaper.

With the weak public option the “reference premium” would be 5% less, and the total size of subsidies should be reduced by roughly 7-10%. That means a weak public option will make the HELP committee's health care reform bill roughly $90-130 billion cheaper.

With the strong public option the “reference premium” would be 10% less, and the total size of subsidies should be reduced by roughly 15-20%. That means a strong public option will make the HELP committee's bill roughly $200-250 billion cheaper.

I have not seen the details to Conrad's co-op plan, (because they do not exist) but similar co-ops currently operating are not significantly cheaper than other private insurance plans. Conrad's co-op should have almost no impact on reducing the cost of the bill.

*all numbers are rough estimates and can change dramatically based on the size of subsidies, eligibility, and structure of the public option.

Kennedy Gaming The CBO To Promote A Strong Public Option

Previously, I described how Ted Kennedy could structure the subsidies for individuals buying private health insurance in a way that would make a powerful case for a strong public health insurance option. The first draft of the HELP committee's bill has been released, and it seems that I was right on the money.

Individuals making less than 500% the poverty line will be given subsidies to help them buy health insurance. The amount of subsidies individuals will receive will be based on their income level and the cost of the “reference premium”. The reference premium with be the “weighted average annual premium of the 3 lowest cost qualified health plans” in the area. The cheaper the plans offered, the less the subsidies will be.

The public health insurance option in the HELP bill will almost always be among the three cheapest plans, if not the cheapest qualified plan offered. The public option will bring down the price of the “reference premium”. Offering a cheap public plan reduces the cost of subsidies the government will need to provide people.

When the CBO (Congressional Budget Office) scores the HELP committee's bill with and without the public option, it will score the bill with the public option as being dramatically cheaper than the cost of the plan without the public option. If the subsidies being offered to individuals were based on anything else (a flat number, consumer price index, federal poverty line, etc), the CBO would not score the public option as reducing the cost to the government.

Since the HELP draft bill does not contain a number, it is currently impossible to determine how much cheaper the public option will make the bill. Using some back of the envelope calculations, I would not be surprised if the public option made the HELP bill around $15 billion cheaper in year one, with the amount of savings increasing each year.

The take away message is this: Kennedy's plan structures health care reform so that if the average American saves money on health insurance, the government saves money. Anything which drives down the cost of premiums for individuals drives down the cost for the government. The government will now have a huge financial interest in reducing everyone's health care premium.