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Why the Public Plan is Both Less and More Dangerous than you Think

Morgen on August 11, 2009 at 10:17 am

As most of you are aware, I have been adamantly opposed to the public “option” within ObamaCare. In fact, I started actively campaigning against it long before it became the lightning rod of controversy it has become in the past couple of months. And while it’s far too early for any self-congratulation, I think my efforts have made some impact.

But I have an acknowledgement of sorts to make. The fact of the matter is that the version of the public plan contained within the legislation making its way through Congress is much, much weaker than it’s proponents initially envisioned. Far from being a direct government takeover of healthcare for 100+ million Americans, the public plan may only have 8-10 million participants after 10 years, according to the latest CBO estimate of the House bill.

There was really only one reason for the watering down of the public plan, and it represents a direct victory for conservative opponents. It was simply too obvious that the Democrats intended the public plan as an incremental step towards a single-payer health system. (The Schakowsky video we released in April made this patently clear.) Thus, the Democrats had to devise ways to legislate a “level playing field” so the public plan would not have any unfair advantages over private insurers. (Or at least pretend to do so.) And they had to devise a way to ensure that the public plan would not be projected to attract large numbers of participants.

But this is where the real danger lies with the coming legislative process. And why even a watered down version of the public plan, if passed, may ultimately turn out to be just as destructive as the plan that Democrats initially envisioned.

Because there are three very simple regulations included in the bill that will determine the size and strength of the public plan. Regulations which very well may end up within the purview of the Health Secretary (i.e. Sebelius) – or a new Health Czar – to change without requiring any new legislation from Congress. These regulations are:

1. Eligibility for the Exchange

The Exchange is where the public plan lives. So if you don’t have access to the Exchange, you don’t have access to the public plan. The bills currently proposed in Congress limit participation in the Exchange to only the uninsured, very small businesses, and a small number of Americans who have individual insurance plans. But it restricts those who have insurance through larger employers from participating. Which just so happens to be the majority of Americans. So obviously if this regulation were to change, it could dramatically increase the number of participants in the Exchange, and thus the public plan.

2. Employer “Pay or Play” tax rate

Most of the bills in Congress include a mandate for employers (with an exception for very small employers) to either provide insurance to their employees, or pay an 8% payroll tax to the government. The CBO has estimated that at an 8% tax rate, most employers would opt to provide insurance rather than pay the tax. In fact, they actually estimated that more employers would provide insurance under the House bill than under current law. Personally, I think they may be underestimating the number of employers that would drop their coverage even at 8%. But if the “pay or play” tax rate was decreased in the future, it would certainly lead more employers to do so. (Liberals who wanted a “strong” public plan were initially advocating for a 6% rate). Any newly dropped workers would of course wind up in the Exchange, where at least some of them would opt for the public plan.

3. Linkage of the public plan to Medicare reimbursement rates

This is key. In fact, it’s the basis for the fight last month between the Blue Dog and Progressive Democrats. Those who want a “strong” public plan want the reimbursement rates paid to providers by the public plan to be based on Medicare rates. Which on average are at least 20% lower than what private insurers pay. But those who worry that the public plan will dominate the market see this as an unfair advantage which will enable them to offer lower premium rates to subscribers. This battle has yet to be fully played out in Congress. But whatever the reimbursement rates are initially based on, any change down the road could substantially strengthen the public plan.


I know these sorts of details make most peoples’ eyes glaze over – I appreciate it if you made it this far. But for our readers who are closely following the political battle over healthcare reform, this is something to keep an eye on as any legislation is finalized. I am hopeful but not very optimistic that for the sake of political expediency, the public plan will be thrown under the bus. But I believe the Administration’s strategy is to get it passed – even a weak, watered down public plan – and to claim victory. Knowing full well that they will have the ability to “improve” the bill in the future. So pay particular attention to whether any of the regulations I outlined above can be modified unilaterally by the Executive branch. This is not a power we want the Administration to have, and conservatives in Congress we will need to oppose this as strongly as they have the public plan.

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Category: Health & Education, Politics |

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