A Public Option Opt-In Is Not The Same As State Based Public Plans

The news yesterday was the Harry Reid would include a public option with an opt-out provision in the Senate bill. There has been some reporting Reid might not have the votes for the opt-out and might need to water it down to a public option "opt-in," state-based public plans, or trigger. A public option opt-in and state-based public plans are two very different proposals that many in the media seems to be falsely equating.

A true public option opt-in would be a national public option that states would need to actively opt in to. The federal government would create a single public option entity, but it would only be able to sell health insurance in states that passed a law to allow the public option in their state. This would be similar to the opt-out proposal where states would need to pass a law preventing the public option from providing health insurance. Probably only a dozen of the very bluest states would pass a law opting in to a national public option. Compared to the opt-out, where the hope is only a dozen of the reddest states would pass a law opting out. Besides denying the public option to most Americans, the other big potential problem with the opt-in is that too few states will opt-in to the public option, and it would be unable to develop the sufficient customer base needed to be viable.

State-based public plans was an idea proposed by Sen. Thomas Carper. States already have the power to create their own public companies to sell insurance right now if they want. “Allowing” states to create their own public plans would in no way be a “compromise,” it is the status quo. Besides the federal government potentially providing states with a large quantity of seed money to help start up these state-based public plans, there really is nothing to this proposal. Given the strong restrictions it would place on potential state-based public plans, Carper's original proposal would literally be worse than nothing at all.

A public option opt-in would create a single national public option that states would need to opt in to. It would probably be restricted to only a few of the bluer states in the country. A state-based public plan proposal would help states set up public plans if they wanted. They would probably only be established in the same few blue states, but suffer from several additional problems. Many states would probably be too small to properly support a public plan. Having several different state-based public plans would hurt insurance portability and would probably drive up cost since the many different public plans would lack the benefits of scale.

State-based public plans would be a substantially worse idea than a public option opt-in. I suspect the public option opt-in would be able to function (i.e. remain a viable entity that could sell insurance) but its impact would be extremely limited. Since it would operate in only a few states, I can't see it improving our overall health care system or being big enough to really hold down premiums. Many of the state-based public plans, on the other hand, could easily be too small to even get off the ground or ever function properly. Since the state-based public plans would be limited to the roughly 10% of people on the exchange states like Vermont, Rhode Island, Iowa, West Virginia, Montana, Kansas, etc. would be too small to create a truly viable public plan. While some have confused these two ideas, there is a dramatic and important difference between a public option opt-in and state based public plans.

Worse Than Nothing: Carper's “Alternative”

Since I got my hands on the one-page document outlining Carper's weird hybrid “alternative” I've had a chance to study the proposal in greater detail. After carefully examination I've determined that it would literally be worse than nothing.

To my understand there is currently nothing legally preventing the states from implementing any of the three possibilities right now. I've read for example that Maine attempted to create a form of quasi public health insurance plan. Iowa recently experimented with encouraging the creation of new health insurance co-ops. To my knowledge both ideals were failures. State sponsored health insurance purchasing co-ops have been tried in the past and do not reduce premiums.

The Carper amendment wouldn't permit anything which is not currently allowed; so it appears that Carper's amendment would then be worthless. . . but take a closer look, and you will see that it is worse than worthless. Carper's plan would, in fact, restrict what states currently could do.

The amendment says:

This would allow a state to offer a state public option; however, both the executive and state legislature would have to agree.

Most states (I believe every state) allows a law to be passed over the veto of the governor if it can get a super majority in the state legislature. By requiring both the executive and state legislature to agree, the amendment is placing an even higher standard than what is current law in order to create a state public option.

The amendment would place restrictions how the public plan could be run.

Regardless of the mechanism chosen, the state would be bound by the same insurance regulations and benefit requirements as private plans in the exchange. The mechanism would have to be completely self financed, aside from initial seed funding, and would be required to have a reserve fund in the same manner that private plans have. The mechanism could not explicitly require doctors to participate, nor use provider participation in Medicare or other public programs to force participation. Additionally, the state could not use Medicare or Medicaid style price controls or rates - they would have to negotiate rates.

If a state started a public plan today they would not be required to follow all of these restrictions.

Finally, Carper's amendment would strongly limit who could uses this new state public plans or co-ops.

The state mechanism would only be open to individuals who were eligible to acquire coverage through the exchange.

Once again, states can already help create insurance co-ops. They don't need to restrict who can sign up for insurance co-ops. There are currently non-profit health insurance co-ops in this country which are able to sign up everyone, not just people on the individual or small group market.

Carper's Amendment does not increase a state's ability to encourage greater competition, it cripples them. The amendment says it would provide seed money for co-ops. It is unclear if it would also provide any (or sufficient) seed money to start the state-based public plan. Seed money is the only possible advantage in the amendment, but probably couldn't make up for the crippling restrictions.

I would like to congratulate Senator Carper. He managed to come up with an “alternative” to the public option that could literally be worse than nothing at all.