Essentially, the bargain struck Tuesday night in the Senate traded a government-run health plan that would compete with private plans in the proposed health insurance exchanges for three other features: giving uninsured people aged 55-64 the right to "buy in" to Medicare; requiring health plans to spend 90 percent of premiums on patient care; and creating a new version of the Federal Employees Health Benefit Program (FEHBP) for the uninsured.
The idea of letting individuals buy insurance through something like the FEHBP is a decades-old Democratic hobbyhorse that was most recently championed by Sen. John Kerry when he ran for President in 2004. The new version would have the Office of Personnel Management, which runs the FEHBP, bargain with private plans on behalf of individual insurance purchasers who would select one of those plans. The crazy thing about this approach is that the FEHBP-like entity would compete with the proposed insurance exchanges, which would not involve the government in negotiations with health plans. It is unclear how competition between these two mechanisms would help expand coverage.
While the Senate compromise discards the original idea of the public option, a government-run plan could still be "triggered" if the reform legislation fails to provide affordable coverage to a certain number of people. Whether that will pass muster with enough Senate centrists-including Olympia Snowe, Republican of Maine-to get the magical 60 votes is anybody's guess at this point. But it seems likely that the public option would eventually be triggered, because the legislation would not control costs enough to make insurance affordable to most people in the long run, even with government subsidies.
Another thing that liberals undoubtedly like about the deal is that it lets uninsured people aged 55-64 buy into Medicare. At first they'd have to pay the full freight; but down the line, they'd be eligible for government subsidies, just like those who buy insurance through the exchanges. Some liberal policy experts, including Marcia Angell and Rashi Fein, have long advocated a gradual expansion of Medicare and Medicaid as a way to move toward a single payer system. While the Senate liberals' attempt to expand Medicaid eligibility from 133 percent to 150 percent of the federal poverty level failed, the Medicare expansion would be a big step for them.
Finally, the compromise would require insurance companies to spend 90 percent of premiums on patient care. In industry-speak, this means a 90 percent "medical loss ratio," or MLR. This would be easy to sidestep by simply raising insurance premiums. But the insurance industry, perhaps fearing that plans would run into too much flak if they tried to do that, is protesting the MLR floor by saying that it would destroy their efforts to improve the quality of care.
What's interesting about the insurers' position is what they're not saying: They're not protesting the idea of letting 55-64 year-olds join Medicare. If I were a betting man, I'd wager that that was because they don't really want these folks, who tend to be sicker than the average health plan member.
However, doctors and hospitals oppose this idea, arguing that Medicare already underpays them, and that expanding it would make things worse. No surprise there.
I don't know whether a Medicare expansion would lead to a single payer system or not. But the reform bill includes a number of Medicare pilot projects designed to change how healthcare is delivered and how providers are reimbursed. For that reason alone, adding a new segment to Medicare is all to the good.