The Wonk Room

What Would A ‘Trigger’ Public Option Look Like?

On Saturday, the New York Times reported that a “significant split has developed between the two Democratic senators leading efforts to remake the nation’s health care system. They disagree over the contours of a public health insurance plan, the most explosive issue in the debate”:

As a starting point for his bill, Mr. Kennedy favors a public plan that looks like Medicare, the government-run program for older Americans created in 1965, when he was a young senator. By contrast … Democrats on the Finance Committee said Mr. Baucus was exploring a possible compromise. Under this proposal, the public plan would be created only if private insurance companies had not made meaningful, affordable coverage available to all Americans within several years.

Sen. Max Baucus (D-MT) is arguing that the threat of a public plan would motivate private insurers to lower premiums. So what would a trigger proposal look like? The legislation could establish certain benchmarks: if premiums do not decrease by X% over Y years, then a public plan would enter the Exchange. The key is to develop the proposal before hand, to ensure a speedy implementation process and convince private insurers that a public option is not just a theoretical threat.

But what would the public option look like? The new public option could start using Medicare-based rates and Medicare leverage to negotiate better prices (this is what Kennedy is considering). Or, beyond the public option, Congress could establish Medicare-based rates throughout the market, allow all private insurers to pay Medicare rates and require all providers serving Medicare patients to accept those rates as full payments. Or Congress could task a commission with the task of adjusting health spending to achieve fiscal balance.

But it’s unclear why we’re bending over backwards to give private insurers the benefit of the doubt…yet again. Why shouldn’t we require private industry to deliver on their promise to contain costs? Health reform isn’t about protecting private industry; it’s about adopting policies that are most likely to lower health care costs. A robust public option — the Kennedy proposal — is likely to score well even with a conservative CBO because it will be able to use its inherent advantages (lower administrative spending) and Medicare leverage to negotiate lower prices with providers and lower health care spending.