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Head Scratcher in Overhaul Debate: What the Heck's a 'Public Plan'?

April 16, 2009 -- If winning bipartisan support is essential to the passage of health overhaul legislation, the White House must reach some accommodation between Democrats and Republicans on the hotly debated issue of what role if any a new "public plan" should play in covering the uninsured.

Backers, including President Obama, of the concept say a government-sponsored insurance plan should be available as an alternative to private plans to enroll the uninsured. They say a government plan will help keep costs down and goad private insurers into providing more efficient care in order to compete.

But in its search to find common ground, the White House isn't committing to a specific definition yet of what a public plan is—suggesting it may be open to having private sector elements in a public plan to attract some Republican support, while hoping to avoid defections by those liberal Democrats who ardently believe that direct government funding of health care is the only long-term solution to controlling costs and providing universal coverage.

But in keeping its options open, the Obama administration is clearly encountering confusion about the concept, which is likely to keep the public plan issue firmly on the front burner of the debate for some time.

In an appearance Wednesday at a forum sponsored by the Kaiser Family Foundation, White House Office of Health Reform Director Nancy Ann DeParle was peppered with questions about the public plan, which appears to be anathema to most Republicans and which even relatively moderate members of the party view with suspicion. The Senate Finance Committee's top Republican, Charles E. Grassley of Iowa, known for bipartisan legislating, warned at an April 9 forum in Mason City, Iowa, that Democrats should not include a public plan in their health overhaul proposals. Grassley said that if a public plan is offered, employers, especially small businesses, would end their coverage and tell employees to join a public plan. "Eventually such a plan would overtake the entire market. It would become de facto single payer," said Grassley.

But DeParle suggested at the Kaiser event that compromise is possible if lawmakers take a broad view of the public plan concept and its twin goals of lowering costs and keeping private plans on their toes.

She said that members of Congress she's met with who are skeptical about the public plan idea "aren't so clear about what it is," and that "when you actually start talking to them about what it might look like, you realize that you're talking about two different things. So I'm actually very hopeful that we'll be able to reach an agreement on that."

DeParle said that "Medicare is obviously a model of a public plan." But there are also "state employee plans out there that some people would regard as public plans. They're sponsored by the government, but they have lower administrative costs and they tend to be less expensive, but they're often operated by private plans."

DeParle said her definition is "something that's sponsored by the government and therefore has very low, almost non-existent administrative costs compared to the others, it doesn't have the need to have brokers out selling, it wouldn't have the need to have a lot of costs and profits the way private plans do."

DeParle said the plan "could have payment rates that are the same as Medicare." But she noted that bothers some members of Congress because they say that "if the payment rates are Medicare rates it would shift costs to the private sector" because they think Medicare rates are too low. But "you don't have to use Medicare prices, you can use something else," she said.

Other Democrats also have floated the idea of state employee plans as models of a public program. At a April 2 hearing by the Senate Finance Committee to consider her nomination to become HHS secretary, Kansas Gov. Kathleen Sebelius said "thirty plus states in the country, including Kansas, has a public plan side by side with private market plans" in their state employee program. "They have an opportunity to take a look at which is best suited to themselves and their families. And there has been no destruction of the marketplace."

Sen. Charles E. Schumer, D-N.Y., who questioned Sebelius at the hearing about the public plan option, said, "it's not going to be enough to have private plans providing health insurance." But "even within those of us who believe in a public plan option, there's a great deal of discussion of how it ought to be structured," he said. Along those lines, Schumer expressed interest in the idea of "a new hybrid, perhaps even run by a private insurer."

But could the hybrid have enough private sector elements to attract Republican support? Asked at the Kaiser forum whether a government-organized exchange offering only private-plan choices might meet the definition of a public program President Obama could live with, DeParle said, "that idea hasn't come up yet." She added that "I think that what was contemplated was one that would be a government-sponsored plan."

DeParle suggested that philosophical objections that government should not have a role in offering an alternative to private plans may not be possible to overcome, in contrast to policy disagreements over how a public plan should function. But she said Obama's focus is on the public plan option as a means to an end—or rather, two ends.

"The reason it's included is because he wanted a mechanism to lower cost and to keep the private sector honest, by having a competitive public plan in there." Obama has said that if there are other ways of accomplishing those goals, he would be open to hearing them, DeParle noted.

But for some lawmakers the government option may not be a means to an end, but an end in and of itself. Richard Curtis, president of the Institute for Health Policy Solutions, said in an interview Thursday that the public plan has become such a focus of the debate that "it's going to be important to find some middle ground here if reform is to succeed."

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