How The House's Public Option Might Differ From The Senate's

We now have the legislative language for the House's less robust public option (PDF page 211), and it has been reported that Harry Reid plans to include the Senate HELP Committee's public option--with some form of state opt-out procedure. (Whether legislative language for the public option in the merged Senate bill is exactly identical to the HELP committee's public option is not yet 100% guaranteed. We will not know until Reid releases his bill--presumably after the CBO scores it.) Both public options would be very similar. They would only be available on the new exchange. They would both be run by the HHS, and negotiate rates with providers. In both cases, the providers' rates will not be higher in the aggregate than the average rate for other plans on the exchange. While similar, there are a few important differences.

State Opt-Out
The biggest difference between the House's public option and the Senate's public option will be the state opt-out provision. Harry Reid has not yet released how the opt-out would work, but it would give the state government the power to stop the public option from selling health insurance that state. The House's public option will be a true national public option without an opt-out.

Presumed Enrollment and Provider Opt-Out
The House's public option has presumed Medicare provider enrollment with a provider opt-out provision. This is a huge strength that makes the House's public option better than the HELP committee's public option. Under the House bill providers that are part of the Medicare network would be presumed to want to take part in the public option. Medicare providers can easily opt-out of the public option before it starts, and would face no penalty for doing so. This presumed enrollment should make it much easier for the public option to get up off the ground. The HELP committee's public option would require providers to actively sign up for the program.

Provider Rate Floor
The House public option would set a provider rate floor. It could not pay providers less than Medicare rates. The HELP public option contains no rate floor. In theory, it could negotiate rates even lower than what Medicare pays for a procedure. While that is unlikely to happen, it is possible that there are some procedures where Medicare is paying above market rates. Because of this small bit of added flexibility on this issue, the HELP public option is technically slightly stronger. Both would not pay rates in the aggregate higher than the average for other insurance plans on the exchange.

State Advisory Councils
Under the HELP public option each state would establish public or non-profit State Advisory Councils. They would be responsible for making non-binding recommendations to the Secretary of HHS on how to better run the public option in their state. What effect their non-binding recommendations would have is hard to guess, but, in general, it sounds like a smart if limited idea. The House bill would not create State Advisory Councils.

Preferred Physicians and Participating Physicians
The House bill directly spells out how the public option's physicians network would work. It would have “preferred physicians,” who would be like in-network providers that accept the negotiated rates as full payment. It would also have “participating, non-preferred physicians.” They agree to not impose additional charges equal to or greater than 15% above the negotiated rate. They would function sort of like out-of-network providers. The HELP bill does not spell out how the public option's network would work.

Besides the state opt-out (and we still don't know how that will work), the most important difference is the presumed enrollment for Medicare providers. The House bill will not force any Medicare providers to take part in the public option and would let them start opting out a full year before the program starts. But it is just human nature that people are much more likely to not drop out of a program than they are to actively enroll in one, regardless how easy it is to enroll or drop out. The benefit of having a ready network to potentially build off of could be critical to successfully launch a new nation-wide insurance entity. Maintaining this provision is very important moving forward.

7 Important Facts In The Baucus Bill CBO Report

Today Baucus released the Chairman's mark of his health care reform bill along with a CBO report on the legislation. I've found 7 interesting and important issues in the report.

1. It looked like Baucus purposely left himself a small possible giveaway to liberals. His bill in fact saves $49 billion, which could be used to increase subsidies by that amount while still keeping it budget neutral. A little "look, liberals won something":

According to CBO and JCT’s assessment, enacting the Chairman’s proposal would result in a net reduction in federal budget deficits of $49 billion over the 2010–2019 period

2. It appears that the CBO agrees with almost every health care reform expert and also concluded that Conrad's small state-based co-ops are worthless.

The proposed co-ops had very little effect on the estimates of total enrollment in the exchanges or federal costs because, as they are described in the specifications, they seem unlikely to establish a significant market presence in many areas of the country or to noticeably affect federal subsidy payments.

3. Baucus made sure adding a robust public option would not make his bill much cheaper. This is very technical, but please follow. His plan would base tax credits on the "reference plan," which is the second lowest-cost plan at the "silver" level. The House and HELP bills uses a "reference premium" which is the average of the three lowest-cost plans in an area at a level. Adding a robust public option brings down the average and the cost of the tax credits. Adding a robust public option would be the cheapest plan and therefore would probably not substantially change the "reference plan", since it is the second lowest-cost plan. This means adding a robust public option to this bill would not score as saving as much money and make it even harder to add one using reconciliation in the future. Very clever, Senator Baucus:

The amount of the tax credits for exchange plans in each area of the country would be tied to the premium of the second-lowest-cost plan in the “silver” tier (the “reference plan”), which would have an actuarial value of 70 percent.

4. The individual mandate will be costly to people and hit a lot of Americans, raising $20 billion.

Penalty payments by uninsured individuals, which would amount to $20 billion.

5. It would only reduce the number of uninsured by 29 million. That leaves about 17 million Americans/legal residents uninsured (and around 8 million illegal immigrants uninsured). That means 37% of currently uninsured Americans/legal residents will still be uninsured. Baucus's bill will only reduce the number of uninsured Americans/legal residents by 63%. Lots of money, no universal coverage, and almost half the uninsured still uninsured.

By 2019, CBO and JCT estimate, the number of nonelderly people who are uninsured would be reduced by about 29 million, leaving about 25 million nonelderly residents uninsured (about one-third of whom would be unauthorized immigrants). Under the proposal, the share of legal nonelderly residents with insurance coverage would rise from about 83 percent currently to about 94 percent.

6. The individual mandate does not apply to Native Americans. Not surprisingly the three Democrats which are part of the “gang of six” come from states (Montana, North Dakota, New Mexico) with disproportionately large Native American populations.

Exemptions from the mandate would also be granted to Native Americans

7. The excise tax on high-end insurance plans is indexed to overall inflation, so over time the tax will hit more and more employer-provided insurance plans.

Except as described below, the threshold would be set (beginning in 2013) at $8,000 for single policies and $21,000 for family policies. After 2013, those amounts would be indexed to overall inflation.

CBO: Public Option Would Reduce Premiums Across The Board

The CBO recently published a new letter on health care reform. They were asked to evaluate the impact of the weak (level playing field) public option in the Senate HELP committee's bill. Their conclusion was that the competitive pressure from the public option “would probably lower private premiums in the insurance exchanges to a small degree,” and with a public plan in the exchange “the costs and premiums of competing private plans would, on average, be slightly lower than if no public plan was available.” By reduce the cost of buying private insurance on the exchange, a public plan, “would tend to lower federal subsidy payments through the exchanges.”

It is important to remember that the premimums for an average health insurance plan for a family of four is $13,000 a year. Even reducing the cost by a very small 4% would saving a family $520.

The benefits of the public option would not be restricted to just the minority of people who choose to sign up for it. The public option would also reduce premiums for those choosing private plans. The public option would also reduce the overall government cost of health care reform.

Progressives are not fighting for a public option for some purely ideological reason. They are fighting for it because Congress' own budget office concluded that even a weak public option would reduce the cost of health care reform and would save millions of Americans billions of dollars on their health insurance premiums, regardless if they select a private or public plan. A public option is both a smart and a very popular idea.

Public Option: Reconciliation Protection, Part 1

It is becoming more and more clear that efforts to find a bipartisan bill are falling apart. I think the only way that health care reform will be passed is using reconciliation. The strange rules of reconciliation mean that some parts of the bill could be stripped out by the Byrd Rule. The Byrd Rule basically says that anything in a reconciliation bill must cost or save money. This is part one of a series where I provide ideas on how to protect the many parts of reform from the Byrd Rule.

It is possible that any public option can pass using reconciliation. Even though the public option is meant to be revenue neutral, it will take in large amounts of money (in the form of premiums) and spend large amounts of money (in the form of reimbursements for procedures). This alone might protect a public option from the Byrd Rule. If not, things get a bit more difficult.

We know for a fact that the the original House robust public option has been scored by the CBO as saving billions. Since the size of subsidies are based on the three cheapest plans, offering a cheaper public plan reduces the size and cost of the subsidies. For that reason a robust public option based on Medicare payment rates should be protected.

A very robust public option does not seem to have the votes in the Senate or the House. Chuck Schumer's “level playing field” public option, found in the Senate HELP Committee bill and House Energy and Commerce Committee bill, seems the most likely to pass. Unfortunately the CBO says it does not save a substantial amount of money. I can think of four politically acceptable ways to protect the “level playing field” public option:

1) It would need a large $10 billion loan and/or seed money fund to start with. The cost of that loan or start up fund might be big enough to save it.

2) The plan could be written to pay the government a profit for a few years or pay back a high interest loan. The revenue this would bring in might protect it.

3) Subsidies are currently based on the average of the premiums of the three cheapest plans. The bill could be rewritten to base the size of the subsidies on only the cost of the public option's premiums. This would not only save money, but would make the public option an essential part of scoring the overall bill.

4) Finally, the public option could be robust for only a very brief period of time. It would pay Medicare rates for only the first year or even a few months. This time period could be adjusted so that it is just long enough to save just enough money to make the “level playing field” public option safe from the Byrd Rule.

The 6 Word Change That Could Save Health Care Reform And The Public Plan

Providing subsidies to help Americans afford health insurance is the single biggest cost driver in health care reform. The CBO calculates that the subsides in the House bill would cost $773 billion, and in the Senate HELP Committee bill they would cost $723 billion.

There are several ways to reduce the cost of those subsidies. You can further restrict who would qualify for subsidies, reduce the size of the subsidies, reduce what is considered minimum health insurance benefits, reduce the minimum actuary cost sharing, or change how you calculate the size of the subsidies.

Changing how you calculate the size of the subsidies seems to me the single best minor change to reducing the cost of health care reform. It would also dramatically strengthen the case for, and the cost savings from, a robust Medicare-like public option.

Currently both the House bill and the Senate HELP Committee bill calculate the size of the subsidies based on the “reference premium,” which is equal to “the average premium for the 3 basic plans in the area for the plan year with the lowest premium levels.” Lowering the price of the “reference premium” would dramatically reduce the cost of reform.

By simply redefining the “reference premium” to be equal to the premium of the lowest cost basic plan offered, it would substantially reduce the overall cost of health care reform. It would also dramatically increase the savings that result from the public plan proposed by the House Democrats.

The CBO concluded that the House's public plan would on average be “about 10 percent cheaper than a typical private plan offered in the exchanges.” It has also been reported that the public plan in its current form reduced the cost of the House's bill by $150 billion.

I'm assuming that since the public plan would be 10% cheaper it would reduce the size of the reference premium by 3.3%. I'm also assuming that the 3.3% reduction in the reference premium is responsible for the public plan reducing the cost of health care reform by roughly $150 billion.

If that is the case, redefining the “reference premium” to mean the premium of the lowest cost basic plan (which would be the public option) would farther reduce the cost of health care reform by roughly another $250 billion. Progressives should push for redefining the term “reference premium” as their solution for reducing the cost of the bill. It would not only produce dramatic savings but it would also make it harder to remove or change the public option in the House bill.

There is an expected change to the accounting rule dealing with Medicare payment rates, which would reduce the price tag of the House bill by $245 billion. Combined with the change I outlined above the cost of the House bill could be cut almost in half.