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Opt-out Clause on Public Option Puts Role of States Back in Spotlight

October 27, 2009 at 12:00 AM EST
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Among the health reform proposals under debate on Capitol Hill is a plan to allow states to opt out of a public option -- which may help legislation pass through Congress, but how would it work to drive down costs? Two experts discuss the idea with Ray Suarez.
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RAY SUAREZ: As we heard earlier, there was plenty of reaction on Capitol Hill to this idea of an opt-out to the public option.

Now we take a closer look now at how it might work and its consequences.

Robert Laszewski is a former insurance executive and now president of his own consulting firm, Health Policy and Strategy Associates. And Ezra Klein is a staff writer at The Washington Post who blogs regularly about health policy.

And, Ezra, what is an opt-out provision, and how would it work?

EZRA KLEIN, “The Washington Post”: So, the basic idea is, you have a national public option, which is what liberals wanted.

But, if Alabama doesn’t want to have a public option, if California, for some reason, didn’t want to have a public option, they can just say, no more, and they opt out.

And what we heard from Senator Dick Durbin on the floor today was that they’re considering having that done by the government — by — the legislature would pass a law and the governor would sign it. So, the compromise here is that the public option is national, rather than state — so, that makes liberals happy — but that states can leave, which makes conservatives, theoretically, happy, though it hasn’t actually seemed to make any of them happy yet.

RAY SUAREZ: Now, Robert Laszewski, there’s still a lot we don’t know about the Harry Reid proposal.

ROBERT LASZEWSKI, president, Health Policy and Strategy Associates: Right.

RAY SUAREZ: But do we know, at least, whether this is public option broadly or narrowly defined? Remind people who would be eligible to buy in if you’re in a state that says, yes, let’s go for it.

ROBERT LASZEWSKI: Right.

If you’re uninsured, if your employer doesn’t provide health insurance, then you have access to something called an insurance exchange under what would be the new law.

The proposal is that, amongst other private health insurance plans, you would also have access to a government Medicare-like plan. So, it would only be people who were uninsured and didn’t have access to an employer-based plan that would be able to take advantage of the exchanges, relatively small number of people.

How to opt out

Ezra Klein
The Washington Post
You have a Republican governor come in, wants to score some points with the base or just doesn't like the idea, and he just says, we're out.

RAY SUAREZ: And, Ezra, how would a state opt out? Do we know what the mechanism is for doing that?

EZRA KLEIN: We don't quite know yet.

What is going right now is that the proposal is going to the Congressional Budget Office. And Reid's office is being very tight-lipped until they score it, primarily because, as I understand it, they want to be able to go back and forth. If they don't get a number they like, they want to be able to change part of it.

But, on the floor today, Senator Dick Durbin, who is part of the leadership team, said that it would be legislature and the governor. And the important thing about that is that it would be very easy for a state to opt out if it was simply the governor, right?

You have a Republican governor come in, wants to score some points with the base or just doesn't like the idea, and he just says, we're out. But, as it is, you would have to make it through Congress. And, as we have seen with health care reform more broadly, Congress is a bit more slower-moving of an operation.

So, if you had one Democratic House, and they didn't want to -- they didn't want to opt out, that would probably be the end of it. So, this sort of stacks the deck in favor of staying in the program.

RAY SUAREZ: But, Robert Laszewski, if you are in a state that uses the opt-out, I think a lot of people have learned during this health care policy debate that you actually can't buy health insurance across state lines.

So, if you're in Louisiana and...

ROBERT LASZEWSKI: Right.

RAY SUAREZ: ... and your state opts out, and, next door in Mississippi, they -- they haven't opted out, you can't just buy insurance over there. You just can't buy into the public option.

ROBERT LASZEWSKI: Well, you can't buy into the public option as one offering.

But even in states where, say, one Blue Cross plan has a substantial portion of the market, maybe even a dominant portion of the market, there would still in all likelihood be a large number of health insurance plans available to you. They just wouldn't be the government plan.

But I think, when it comes to access, the real issue is not whether you have a public option or not, but how much you're going to have to pay for insurance. Under the House bill that has a public option for everyone in the insurance exchange, no opt-outs, a family making $55,000 a year is going to have to pay the first $5,500 in premium on their own.

A family making $74,000 a year is going to have to pay the first $7,000 of premium on their own. Now, whether it's a public option or whether it's a private insurance plan, you're still going to have a real big affordability problem there, because to the person on subsidy, the private plan is going to cost $5,500, the public option is going to cost $5,500.

I don't know of a lot of families making $55,000 that have $5,500 in their checking account every year. So, I think there's an access problem, whether you have the public option or not.

More savings vs. more revenues

Robert Lazzewski
Health Policy and Strategy Associates
We can't afford the subsidies, because insurance, whether it's public option insurance or private insurance, just costs a lot of money.

RAY SUAREZ: But that really is a function, is it not, of the mandate, not of -- of whether there's -- as you mentioned, whether there's a public...

ROBERT LASZEWSKI: Right. So, how do you mandate -- but how do you mandate a family making $55,000 to make out a check for $5,500?

EZRA KLEIN: Yes, I would say it's a function of the subsidies.

So, one of the things you had which I think was an under-noticed turning point in the debate was, when Barack Obama gave his big speech, he actually named a number. He named $900 billion as the number health care reform would come in at over 10 years.

Now, before that, the House bill had come in a bit over a trillion, and which is what a lot of experts think you need to make this affordable. The Senate Finance bill's under $900 billion, fairly easily, and so, too, are now the House bills, though, in part, because one of them attempts to save more money by giving you a stronger public option.

And this is going to be one of the fights that I think people really aren't focusing on, but need to, the need to get either more savings or more revenues into this program in order to make it affordable for families in the middle range. And the people we're really talking about here are people between about 300 percent and 400 percent of income.

This is where the subsidies...

RAY SUAREZ: Of poverty level.

EZRA KLEIN: Of poverty level -- I'm sorry.

This is where the subsidies in the Senate's bill really begin to bottom out. But these are the working poor. And they -- or not the working poor, but the working class. And they're the ones who are really going to struggle, who aren't going to get much help, but are going to need to purchase fairly substantial policies to cover their families.

ROBERT LASZEWSKI: I think Ezra makes an excellent point, in -- you have got a $900 billion health care bill. The problem is, America's health care costs are out of control and higher than a kite.

And we can't afford the subsidies, because insurance, whether it's public option insurance or private insurance, just costs a lot of money. And when you do the $900 billion, you take good care of families making $20,000 or $30,000 a year. A family making $27,000 a year only has to pay about $1,000 toward their health insurance.

But, again, $55,000, they have to pay $5,400. That's the House plan net of the subsidies. A family making $73,000 has to pay $8,700 toward their health insurance bill. And the problem is, you start with $900 billion, it only goes so far.

And, so, what we have got here is a $900 billion bill, Ezra, as you pointed out, but don't forget the $250 billion for for the physicians, because they're facing a 21 percent physician cut. So, at $900 billion, plus $250 billion, at $1.1 trillion, we're not doing anything for the middle class here.

EZRA KLEIN: Well, I wouldn't go that far. And I wouldn't put the physician cut into this bill.

But the one other point I make to bring this back to the public option -- you're going to hear this coming from the liberal side a lot -- is, it would compromise a public option down far beyond where it really does much for affordability.

So, there were two public options at one point on the table, one that's called the level playing field option, which is where we are. The other one worked like Medicare, and would attach itself to what are called Medicare payment rates. Medicare bargains down how much it pays doctors and hospitals through its sheer size.

And that was estimated to save people on premiums about 20 to 30 percent by a couple different independent authorities. And then the Congressional Budget Office came in and said that would save the government $120 billion. So, that actually got taken off the table. Providers feel that it doesn't give them enough money. The insurance industry hates it.

Moderate Democrats and Republicans were quite opposed. But that was a public option that would have helped deal with some of these affordability questions. And, in sacrificing it, they have made one of their other problems worse. It's a bit like a balloon you squeeze, where, if you squeeze on one end, it enlarges on the other.

Risks of a weak mandate

Ezra Klein
The Washington Post
If you make it too weak, and you're not doing enough on the affordability side, a lot of young people, a lot of people who just don't feel this is affordable for them...they're going to stay out, and average premiums are going to go up.

RAY SUAREZ: But let's go back to Harry Reid and the changing approach to getting health care reform passed.

With this opt-out and a mandate at the same time, you could end up obliged to buy health insurance, but unable to use the public option...

ROBERT LASZEWSKI: Well...

RAY SUAREZ: ... and, in some states, have a very narrow range of choices, won't -- don't you?

ROBERT LASZEWSKI: Well, I think there's a bigger issue. And that is, you could have a mandate to buy a policy for the family costing $5,000 to $8,000, which these numbers show here.

In the Senate Finance bill, Democrats are now saying, oh, we can't mandate a family to do that, because how can you mandate a family to make out a check for $5,000 to $8,000 that's making $50,000 to $70,000 a year?

So, what we're going to do is, we're going to relieve you of the mandate. We are going to make it a $200 fine, or no fine, says the Senate Finance bill. Now we're at the crazy point where a family could decide not to pay for the health insurance, not to pay $5,000 to $8,000 for health insurance, but because preexisting conditions in medical underwriting are taken away, the insurance industry is reformed, they can walk into the insurance exchange any day they want to, not pay for the health insurance, walk in, sign up, have an insurance card the next day, and go to the doctor.

You have effectively got an insurance system here as if you could buy car insurance on your car after you smashed it up or home insurance on your home after it burned down.

I mean, we're really getting to almost a ridiculous point here, in terms of trying to stretch this $900 billion and make the subsidies adequate, which we're not doing, and probably giving the insurance system a lot of problems.

RAY SUAREZ: Time for a quick response.

EZRA KLEIN: I agree with some -- I agree with quite a bit of that.

In fact, I think that I would fix it on the side of the subsidies. I want to make it more affordable. But if you bring this individual mandate down too low, it's a very important leg of the stool. I mean, you have the subsidies working with the mandate, working with the regulations.

Right now, what happens is that insurers can essentially take out the sick. We're not going to let them do that anymore. They can't tell you, you can't sign up with us because you have a preexisting condition.

But, to do that, to make sure premiums stay low, we need to make sure the healthy are in the pool. And the mandate is the way you do that. And if you make it too weak, and you're not doing enough on the affordability side, a lot of young people, a lot of people who just don't feel this is affordable for them, but they're, you know, under 50 or something, so they're a better risk, they're going to stay out, and average premiums are going to go up.

And that would be a problem. And it's one we can fix, but we need to be serious about the revenue side of this, which just hasn't gotten the attention it deserves.

RAY SUAREZ: Ezra Klein...

ROBERT LASZEWSKI: Which means a lot more than a trillion dollars.

RAY SUAREZ: ... and Robert Laszewski, gentlemen, thank you both.

EZRA KLEIN: Thank you.

ROBERT LASZEWSKI: Thank you.