The public option in the original draft of the House bill is a government insurance option, national in scope like Medicare, and financed entirely by the premiums that enrollees pay into it. The key feature that makes it "robust" is the way it reimburses doctors and hospitals. The robust public option reimburses the same way Medicare does: according to a set fee schedule that lays out how much different procedures are worth, adjusted for certain variables. Here's a relevant slice of a fantastic overview of how Medicare works:
DRG is a prospective payment system that covers payment for all patient costs for each hospitalization except doctors’ fees, which are covered separately under [Medicare] Part B. For each patient and each admission, the hospital is paid a fixed amount that is meant to cover all hospital costs and charges for services that would be needed to treat a patient with a particular problem. About five hundred DRG categories have been created, each associated with a specific disease or injury. Modification for other co-existing or underlying health problems alters the payments, in effect creating thousands of categories. For example, there is a DRG for acute cholecystitis (gall bladder infection) that can be modified by other DRG’s for complications like co-existing infections, gallbladder rupture, and pancreatitis, or for underlying conditions like diabetes or heart disease, and so on.
The values of DRG’s are set empirically, based on actual data collected about costs of hospital services, and modified on a regular basis to reflect changes in costs and management approaches. There is one baseline DRG for each condition, but that baseline payment for hospitals is adjusted for other factors, including local labor costs, hospital location, teaching and training programs, large Medicaid and non-paying populations, and so on. The dollar value of the modifiers often exceeds the dollar value of the underlying DRG. It is these modifiers that account for the large region to region variation.
If you want a picture of that regional variation, take a gander at this handy map. One of the keys to the robust version of the public option is that Medicare reimbursement rates tend to be lower than what private insurers pay for the same services. Does this shortchange hospitals? Well, probably not, if they're operating efficiently:
The March 2009 MedPAC Report to Congress: Medicare Payment Policy (Chapter 2A). . .concludes that the dominant dynamic in the market is that hospitals with strong market power have abundant financial resources. In turn they have a high cost structure (perhaps due to provision of relatively higher quality care) that causes lower or negative Medicare margins. In contrast, hospitals that are forced to run efficiently are adequately funded by Medicare payments. That is, Medicare payments are sufficient to cover costs but some hospitals run inefficiently and make it appear otherwise. Therefore, MedPAC has concluded that increased Medicare payments to hospitals would not reduce rates charged to private insurers. The primary effect would be to induce lower cost operations.
This is where the true cost-saving potential of the robust public option comes from. It pays--on behalf of its customers--rates that are just a bit higher than Medicare rates but still less than what private insurers are paying. Hence the added competition and downward pressure on the rates and spending of private insurers.
So what are the compromises that have been suggested?
● The "weak" (negotiated rates) public option. A cousin of the robust--or "strong"--version of the public option, this weaker version was actually included in a bill that already passed out of one Senate Committee (the HELP Committee) a few months ago. Instead of relying on pre-set rates that are pegged to Medicare rates, this public option negotiates its rates (via the Health and Human Services Secretary) with providers. It isn't likely to save much money but it's more palatable to conservative Democrats who are skeptical of the robust public option.
● The trigger. We've talked about this idea before. Favored by Republican swing senator Olympia Snowe, the trigger would create state-level exchanges if two or more affordable health care options aren't available to more than 95% of a state's population. What's affordable? That's defined by a sliding scale, from a family paying "3 percent of [income] at 133 percent of the Federal Poverty Level, to 13 percent at 300 percent and above."
● The co-ops. The government provides some seed funding for non-profit health insurance collectives that would compete with profit-driven insurers. This idea is plagued by nagging doubts that co-ops will have the muscle to sustain themselves and make a dent in the health insurance market.
● The opt-in. Individual states can decide whether they want to set up a state-level (weak) public option. Actually, the proposal is a bit broader than that: "Carper suggests giving states the option of creating a competitor to private insurers, which could include a government plan, a network of co-ops, or a large purchasing pool modeled after the revered Federal Employees Health Benefits Plan."
● The opt-out. Here a national robust public option is created but individual states are free to opt out of it.
The trigger compromise that seemed to be gaining steam a few weeks ago seems to have largely fallen by the wayside. Which (if any) of these compromises will make it into the final bills? We'll have to wait and see.
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