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Today's Opt-Out Public Option Announcement

October 26, 2009 - by Donny Shaw

Sen. Harry Reid [D, NV] this afternoon announced that he and his fellow negotiators had finalized the health care bill they will present to the Senate and that it will include a public option with a provision that allows individual states to opt out. This is generally being treated as a big victory for progressives, and it is a crucial accomplishment for getting some kind of public option in the bill that eventually becomes law.

But Washington Post blogger Ezra Klein, who has been following the health care debate in Congress closer and longer than just about anyone else, reminds us that the plan announced today is actually a steep compromise from what most progressives want out of health care reform:

For the real liberals, the public option was already a compromise from single-payer. For the slightly less radical folks, the public option that’s barred from partnering with Medicare to maximize the government’s buying power was a compromise down from a Medicare-like insurance plan. For the folks even less radical than that, the public option that states can “opt out” of is a compromise from the straight public option. Access to the public option will be a political question settled at the state level. It is not a settled matter of national policy.

In many ways, this is a fundamentally conservative approach to a liberal policy experiment. It’s only offered to individuals eligible for the insurance exchanges, which is a small minority of the population. The majority of Americans who rely on employer-based insurance would not be allowed to choose the exchanges. From there, it is only one of many options on the exchange, and only in states that choose to have it. In other words, it has been designed to preserve the status quo and be decided on the state level. Philosophically, these are major compromises liberals have made on this plan. They should get credit for that.

There’s a lot that we still don’t know about Reid’s opt-out public option. One thing that will really determine just how big of a compromise this plan is is how it sets its rates for reimbursing health care providers. Basically, there are two options on the table. The first would pay providers at Medicare creates plus 5 percent. This is like the “robust” option in H.R. 3200 that has been scored by the CBO to save $110 billion over 10 years and allow the public option plan to offer premiums about 10 percent cheaper than its private competitors. The second option on the table is to have the HHS Secretary negotiate rates with providers. The CBO has estimated a plan with negotiated rates — a.k.a. a “level playing field plan” — to save $25 billion over ten years and not be able to offer lower premiums than the private companies.

Igor Volsky at the Wonk Room explains why this is so important:

The opt-out compromise, initially floated by Sen. Tom Carper (D-DE), is loosely modeled on Medicaid, which originally allowed states to “opt-out” of the program and today enjoys the participation of all 50 states. Supporters of the plan believe that if the public option proves itself in states where it’s functional, then legislators from conservatives states would be hard pressed to exempt their states from the program. After all, why reject an option that offers lower premiums and saves the state billions in health care costs? Rhetoric about a ‘government-takeover’ of health care may sound good on television, but it loses its appeal when you’re trying to balance your books.

In other words, if Reid’s plan is to have the opt-out public option use negotiated rates, it probably won’t be able offer cheap enough premiums to win participation from conservative states. And the more states that back out of the plan, the more it will lose its economy-of-scale advantage for competing with the private companies. At that point, if it’s not big and it’s not tied to Medicare, it won’t really be serving any purpose at all.

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