Max Baucus and the “Public Plan”

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For the new issue of dead-tree TIME, I have written this short profile of Senate Finance Committee Chairman Max Baucus, a most unlikely figure to have emerged as the point man for health care reform in the Senate. (The print version also has a chart detailing the highlights of Baucus’ own health reform proposal, which you can read about in detail in the White Paper that he produced last November.)

What didn’t make the print edition story was a part of the interview in which I asked Baucus about one of the most controversial elements of both his plan and President Obama’s–the so-called “public plan,” a option in which people would have a chance to enroll in a Medicare-like publicly financed health system. The insurance companies hate this idea, saying it is would be unfair for them to be forced to compete with the government. Many health care experts, however, argue that this provision is crucial, as a means of holding down health care costs. (The idea being that the government would use its muscle–much as it does in the Medicare and Veterans Administration programs–to negotiate lower reimbursement rates.) Conservatives oppose it as well, because they see it as a first step toward a Canadian-style single-payer system.

What Baucus had to say will not give much comfort to those who support the idea of a public plan as it is presently being proposed. He strongly suggested that its main value, at this point, is as a bargaining chip to get the health insurance companies to agree to other things that reformers want to see:

“Essentially, it’s to keep it on the table to encourage the private health insurance industry to move in the direction it knows it should move toward—namely, health insurance reform, which means eliminating pre-existing conditions, guaranteed issue, modified community ratings. [TRANSLATION: Measures that would force the insurers to cover the sick as well as the healthy, at a cost that everyone could afford.] It’s all those actions that insurance companies must take in order to provide affordable coverage. And the public option helps encourage the private companies to move in that direction, because they’re worried. We might have to modify the public option to get enough votes. I hear some concerns among Republicans about the public option. The main purpose is to keep the health insurance feet to the fire.”

Indeed, there are signs that the insurance industry may be willing to make concessions like the ones that Baucus mentioned.

President Obama also seems open to compromise on this aspect of health reform. In an exchange earlier this month with Republican Senator Chuck Grassley, the ranking Republican on Finance and an opponent of a public plan, the President had this to say:

“I recognize, though, the fear that if a public option is run through Washington, and there are incentives to try to tamp down costs and—or at least what shows up on the books, and you’ve got the ability in Washington, apparently, to print money—that private insurance plans might end up feeling overwhelmed. So I recognize that there’s that concern. I think it’s a serious one and a real one. And we’ll make sure that it gets addressed, partly because I assume it will be very—be very hard to come out of committee unless we’re thinking about it a little bit. And so we want to make sure that that’s something that we pay attention to.”

So is there a middle ground on this question? One idea to keep your eye on: a proposal recently put forward by Len M. Nichols and John M. Bertko of the New America Foundation, which would put a public plan on a similar financial footing as the private insurers. It wouldn’t be able, for instance, to rely on government subisidies, and would have to charge premiums that actually cover its costs. Nor could it require providers to serve public plan patients as a condition to participating in Medicare.

Here’s what Harold Pollack of the University of the Chicago sees as the pluses and minuses of this approach:

In my view, the public plan’s bargaining power over providers is a feature rather than a bug. If insurers can’t match that, that’s a strike against private coverage rather than an argument against the public plan. Sure, cost control through government monopsony raises genuine concerns. So does every other cost control measure in the real world. Per dollar of reduced spending, I wager that the resulting distortions would be less burdensome, less intrusive, and more inefficient than those likely to result from private actors cutting costs in other ways.

Yet the ultimate merits may be beside the point. Nichols and Bertko’s constrained public plan would have weaker tools to control costs, but it would still provide many important benefits to patients and to the entire healthcare system. It would provide a backstop for chronically-ill people who feel badly-served by private coverage. It would provide a benchmark competitor for private plans. It would provide an organizational structure for key health system innovations.

Most important, it might actually exist, which makes it far superior to some excellent alternative that dies in Congress for lack of a half-dozen critical votes. Moreover, health reform won’t end with the passage of any single bill. Congress could always step in and fix the program later. They will probably have to, if as I fully expect, this self-constrained public plan structure proves too weak for effective cost control.

Like I said, it bears watching.

UPDATE: Gov./Dr. Howard Dean on the public plan.