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The Public Plan: How Would This Insurance Option Work?

InsuranceTwo weeks ago, Congress gave final approval to President Obama’s $3.5 trillion budget.

Democratic leaders are hailing the budget’s passage as a victory, despite the fact that 17 House Democrats and 4 Democratic Senators did not sign on.

Healthcare advocates have reason to be optimistic as well: Democratic legislators included language in the budget bill that prevents Republicans from using a filibuster to block healthcare reform.   

Known as “reconciliation protection,” this procedural move requires congressional committees with control over health to pass reform legislation by October 15, 2009.

If an agreement cannot be reached by that time, the healthcare legislation will come to a mandatory vote in the Senate. As a result, only 50 votes will be needed for the healthcare portion of the budget to pass.

Since the Democrats will soon have a 60 member majority in the Senate (once Al Franken is sworn into office), we can safely say that some incarnation of healthcare reform legislation is on its way.

  • Even if some of the more conservative Democrats break ranks, Democratic leaders should be able to lock up the 50 votes that they need (Vice President Joe Biden will be on hand to vote in the case of a tie).

The Democrats hope that it won’t come down to the reconciliation vote.

  • Senate Budget Committee Chair Kent Conrad (D-ND) is optimistic that a bipartisan agreement on healthcare can be reached in the next 5 1/2 months.
  • And the threat of the budget reconciliation vote will surely motivate Republicans to come to the table and compromise on certain points.

So what specific reforms are the Democrats most likely to push, how would they be carried out and how are they being perceived by Republican legislators and the general public?

One of the most widely considered, and criticized, plans thus far is known as the Public Insurance Option. Both the President and Senator Max Baucus (D-MT) have spoken about the potential of such an insurance option to decrease the ranks of the uninsured and reduce costs through increased competition amongst private insurers.

How would the Public Insurance Option Work?

Under this plan, the government would establish a new public insurance option that would be made available to folks through a national insurance exchange.

The insurance exchange would offer a range of regulated private plans and the public insurance plan to the uninsured.

The public insurance option would:

  1. Offer “comprehensive” benefits with incentives for disease prevention and payment methods that reward results;
  2. Build on Medicare’s claims administrative structure and national provider networks;
  3. Be open to individuals and to large employers;
  4. Provide income-related premium assistance to help low-income folks afford coverage;
  5. Set a minimum benefit standard to ensure access and adequate financial protection in the case of an emergency.

Plan advocates stress that insurance obtained through the exchange could go with the insurance holder, thus helping folks to retain their coverage upon moving or losing their jobs.  

Upon the creation of the public insurance option,

  • Folks would be required to obtain coverage, 
  • Employers would be mandated to offer insurance, or pay into a trust fund that assists low-income people in affording their premiums.

The hope is that the public insurance option would help to reduce the price of private insurance through increased competition: The public plan will spend just 5% on overhead costs, compared to the nearly 15% currently spent by private insurers.

The Commonwealth Fund predicts that private insurers will be forced to cut administrative costs and waste to offer comparable premiums and retain customers.

In this extensive report, the Commonwealth Fund argues that health expenditures could be reduced by $3.3 trillion by 2020 by implementing a number of healthcare reform initiatives.   The recommendations include the creation of the public insurance plan, and assert that the maximum savings cannot be achieved without such a program in place.

Tomorrow we’ll look at the arguments regarding the politics of establishing a public insurance option.

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