COVERAGE: Triggers For A Public Option Can Work

With the Senate Finance Committee still to debate how (or if) to include a choice of public health insurance plan or co-op in the new insurance marketplace, it is a good time to clarify the implications of a public plan that takes effect when competition is lacking or prices are too high, the so-called "trigger" option. Senator Snowe (R-ME) is expected to introduce a version of this idea in an amendment to provide a "safety net fallback plan to ensure access to affordable coverage."

The amendment (Snowe Amendment # 1 - Coverage, p. 207) would establish a non-profit government corporation to offer a competing plan in any state where 5 percent or more of its residents do not have access to "affordable" coverage (with affordable defined consistently with the original Chairman's Mark on a sliding scale between three percent and 13 percent of income for individuals between 133 percent and 300 percent of the federal poverty level (FPL). Chairman Baucus has since modified his mark, moving the sliding scale affordability test to between two percent and 12 percent of FPL. More than likely, Senator Snowe will modify her amendment accordingly. 

Some have argued that a "trigger is an excuse for not doing anything." This assertion is simply wrong. It should not get in the way of serious consideration of this viable option.

A triggered public option makes sense because markets are different across this large and diverse country of ours. Some markets are competitive now and likely to remain so after reform; however, others are dreadfully uncompetitive. For example, it is hard to imagine that Seattle's insurance market is going to be improved with a new public option. They already have Group Health Cooperative, Kaiser, Aetna, United, and a couple of Blue plans. Indeed, the premium for Group Health's plan for federal employees in Seattle is 13 percent lower than the national corporate average, despite the fact that Seattle is a large, high-cost city. By contrast, many southern and most rural states (like Maine, Wyoming, and North Dakota, to pick a few highly-relevant examples) are dominated by their Blue plans. We expect small insurers who underwrite aggressively to be unwilling to compete under new insurance market rules. Therefore in these states, there may be few (and maybe only one competitor, the local Blue) on day one of the exchange.

This is a scary prospect; monopoly is rarely a good idea. (Just ask the many small employers who face this reality today.)  A competing public option could add real value in these markets, bringing more premiums into the affordable range. To be sure, we must establish a credible threat to enter unaffordable markets (this can be accomplished through a federal charter). But the mere possibility of another competing insurer on their turf might induce otherwise unchecked monopolies to offer quality coverage at affordable premiums, which is all we really want.  

Triggering the public option based on affordability is smarter than linking it to a specific number of competitors (as is the case today in the Medicare Part D program). The number of competitors is an arbitrary structural parameter because if the locally dominant plan is offering affordable premiums, it is performing in the best interest of its customers. After all, the point here is not the specific number or type of competitors in the marketplace, but rather access to affordable, high-quality care for all Americans. 

The "trigger" approach will help otherwise vulnerable consumers -- the fundamental rationale of the public option from the outset -- without coming into existence everywhere and raising the (exaggerated) specter of "government takeover."  Thus, the trigger can satisfy the core demands of the political left without exacerbating the fears of the political right. 

A public option that is triggered when insurance is unaffordable is not an excuse to do nothing. It is a well-designed tool that can catalyze competitive performance exactly where we need it, in every insurance market for every American across the country.