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.

Reconciliation: The Tipping Point On Health Care Reform

What is probably the decisive battle in the war to reform our health insurance system is currently being fought behind closed doors. It is not a battle over regulation, the public plan, or funding. It is the fight to include in the budget a provision to pass health care reform using reconciliation if a bipartisan bill fails. Reconciliation would allow health care reform to pass with a simple filibuster-proof majority.

Currently (without reconciliation) the Senate Republicans have an enormous influence over health care reform. If they can keep all 41 GOP senators together, they can filibuster any health care bill. Barack Obama has made health care reform his first of several major initiatives he wants to tackle. If health care reform fails, it would mean Obama is a weak and ineffective president. It would destroy his political capital and cripple all his other reform plans.

Obama needs to pass health care, and the Republicans know it. They know walking away from a bipartisan bill could hurt Obama more than themselves. Without reconciliation they could force any health care bill dramatically to the right despite their small numbers.

Including a health care reconciliation provision completely alters the political dynamics. With reconciliation the Democrats don't need any Republican support to pass health care reform. Without reconciliation, if the Republican senators walked away from a bill it would kill it. Now if Republicans refuse to compromise on health reform, it will end up being written by the left wing of the Democratic Party.

Reconciliation is the key to passing progressive health care reform. It is the massive stick which forces Republicans to make large compromises or live with a bill written entirely by Democrats. By including reconciliation and maintaining enough unity, the Democrats will be able to pass any health care reform they want.