Health Reform: Look How Far We've Come. Now Where the Heck Are We?

03/18/2010 05:12 am ET | Updated May 25, 2011

The public option is dead: Long live the public option.

Wait. Maybe it is dead. The rocky road to health reform is likely to induce severe mood swings, considering the elation after Harry Reid's announcement yesterday and the gloom after Joe Lieberman's threatened defection today. Maybe the health reform process needs a sign like the ones carnivals put up over the Tilt-a-Wheel: "Must be this tall to ride this attraction."

The public policy option presented by Harry Reid may not meet the consensual definition of "robust," but it isn't the opposite of robust either. We'll need another adjective to describe it if it passes: Hale? Stout? "Ruggedly mild with a hint of oak in the aftertaste?" But while they're working on terminology, Democrats should be mapping their course of action should Sen. Reid succeed. Much of the work will begin, not end, when and if this bill passes.

Putting Sen. Lieberman aside for a moment (and who wouldn't want to?), what can we expect to see if the final health reform bill conforms to Sen. Reid's outline? The crystal ball is somewhat murky, since some of the most critical features of the bill aren't fleshed out yet. But we know that progressives are counting on the public option to be a check on insurance industry abuses, and to slow down the health care cost spiral.

Maybe, maybe not. The public option will only impact the system globally if it has clout (which comes from volume), cost savings, and an attractive package of benefits. How likely is that under the proposed Senate bill? Here's what we can surmise so far:

The opt-out: I was surprised at the anger my last post on opt-outs provoked in some progressives. "Ideological rigidity," said some. I still think the opt-out weakens an already-compromised public option, and that it clashes with some of the moral rhetoric from Democrats. But, as I wrote at the time, "Is a 60-vote, non-reconciliation outcome in the Senate worth (it)? Maybe in the end the answer will be 'yes,' but that question should only be posed after all other options have failed."

Well, apparently they've failed. Now the opt-out is looking like a shrewd tactical move, and let's hope it succeeds. But every such tactical reduction reduces the public option's ability to effect system-wide change. That's not ideology, it's common sense.

A number of people expressed great skepticism when I said that a number of states would exercise the opt-out provision if it were enacted. Now, two short weeks later, even the Democratic candidate in the Virginia governor's race is suggesting he'll opt out if elected. So a public plan that was forecast to win 5% of the expanded insurance market is now likely to gain something less than that.

What will the final number be - 4%? 3%? We don't know. But those progressives who are waxing euphoric need to come back down to earth. Their mission, should this bill pass, will be to keep the number of state defections as low as possible. They can't do that by repeating the old mantra, "People would never be so foolish ..." After all, they said that during the 2004 election, too. Campaigning against opt-outs will be Job #1 if this bill passes. If that happens, then, to paraphrase Joe Hill: "Don't celebrate, organize."

Medicare rates: The Reid plan isn't technically "robust," because it doesn't tie public option doctor/hospital reimbursements to Medicare rates. Again, that may be smart politics - but it weakens the PO's cost-competitiveness. This is a complex issue, but the bottom line is this: If the public option has to negotiate its own rates with health providers, and it's only likely to get an average of 5% in any given market, it's not going to have a lot of clout to get favorable pricing. Sure, it will save on marketing costs, but so will any other insurance plan in the exchange. So how much of a cost-check is it going to be?

To make matters more complicated: If a public option is tied to Medicare rates, that might cause more doctors to drop out (or "opt out") of Medicare. That could create an access problem. But that issue could be managed by giving the public option the flexibility to make exceptions in its rate structure by region and/or type of provider.

Mandates again
: There's talk of easing the employer mandate, while keeping the individual mandate. That could get tricky, because it could shift a greater portion of the cost back onto working families. And mandating the purchase of private insurance in states without the public option could be unpopular.

Paul Krugman may be overly sanguine about the likelihood that health reform will be well-received after (or if) it's implemented. Those polls showing that the Massachusetts reform is popular among doctors are not surprising, since they benefit when more people have insurance. The fact that only 2.6% of that state's residents remain uninsured sounds good, but that figure was 5.7% before reform. So they've cut their uninsured problem by slightly more than half (55%). Similar results nationwide would leave more than 20 million Americans uninsured (assuming 47 million now), which could be politically unpopular.

And while one poll shows that only 11% of Massachusetts residents polled would repeal reform, that's in a state that lacks the rampant right-wing extremism we see nationally. Other polls there have shown that most people personally affected by the state's reforms are unhappy with them. On the national level, these disaffected people may well turn out to be swing voters, especially after the Media Noise Machine has worked on them.

Benefits Design, Insurance Exchanges, and Cherry-Picking: As Professor Krugman points out, Massachusetts has been proactive in mandating benefits design, showing a level of political will that may be absent on the national stage. If the insurance exchanges do not mandate a decent level of coverage, families who pay those large insurance premiums may still face financial disaster should a major injury or illness take place.

In states where the public option provides more generous benefits than private carriers do, the end result may well be what the insurance industry calls "cherry-picking." That's what health plans do when they design their benefits and administer their plans in ways that make life especially difficult for those who need more care, or who are more likely to need it in the near future. If insurance exchanges aren't given the tools to manage the cherry-picking problem, the public option could become a toxic waste site where for-profit carriers dump the sick and needy. The end result could be a public option that actually costs more than private insurance.

The Keyword is 'Evolution': So, do I dislike the Reid bill? Not at all. I suspect it's the best we're going to get, and we'll be lucky if we do get it. As I've confessed before, I've consulted for health insurers in the past (as well as employers, unions, foundations, tech companies, and others - which I do more often). Part of that job is to point out all the bad things that could happen, so that people can plan accordingly. Each of the above problems can be addressed, but only with awareness and forethought.

The keyword in this planning process is 'evolution.' If a watered-down plan is all we can get - and it looks like it is - it's wise to design it so that it can evolve toward a better system in the future. The public option is one way to do that, by forcing insurers to lower costs or lose market share. Lawmakers are right when they point out that, as it's now designed, it's not the most significant part of the program. But if it's there, and we don't eviscerate its cost-saving potential, it can be a powerful lever for future change.

We're likely to see continued voter dissatisfaction after this bill is passed. That can be a good thing, if mechanisms have been put in place that permit quick response to those dissatisfactions when they arise. That's a good reason to support the Wyden Amendment, which would allow anyone to elect the public option. It's also an argument for improved regulation of insurance company benefits, and for retaining the option of using Medicare rates at some point in the future.

As for how to handle Sen. Lieberman - hey, I wish I knew.

RJ Eskow blogs when he can at: