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Deparle: Two Options For Public Plan

The Obama administration sent a very clear signal about its feelings on a public insurance option yesterday.

It came from Nancy DeParle, who is director of the White House Office of Health Reform, during a briefing sponsored by the Kaiser Family Foundation.

Via the Wall Street Journal's "Health Blog," here is what she said:

A public plan is something that’s sponsored by the government, and therefore has very low or almost nonexistent administrative costs, compared to 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 would. So it has that advantage. It could operate by the same rules that all the other plans do; it could have payments rates that are very similar. Or it could have payment rates that are the same as Medicare--that’s one idea that’s been used. So there are various ways of looking at it.

In the last few months, the administration has been pushing the public insurance option pretty hard. At the White House health summit in March, Obama himself seized the opportunity to make a strong case for it--and to do so before people who, he knew, were sharply critical of the idea.

But this statement from DeParle suggests that the administration is looking at two pretty different options for it.

One is what you might call the full, or strong, public plan option: Creating a new insurance program that the government would run directly, much as it does Medicare. The idea would be to take advantage of Medicare's efficiencies as well as government's ability to set lower reimbursement prices. Projections suggest that such a program would have the potential to offer substantially lower premiums. 

This idea is closely associated with UC-Berkeley Professor Jacob Hacker and promoted heavily by such liberal groups as Health Care for America Now

Of course, precisely because a strong public plan has the power to offer lower premiums, the idea is a non-starter with the insurance industry. Since it would achieve a lot of its savings by reducing reimbursement levels, it's not exacty popular with the providers of medical care. And because it is, by definition, "government run," it's anathema to most conservatives.

That's why a second version has emerged, which you might call the partial, or weaker, public plan option: Creating a plan, or set of plans, that realize some of the administrative savings you find in programs like Medicare but explicitly avoid using government bargaining power to set prices. These plans would have potential to achieve some savings, but not nearly as much; and it's not clear whether they'd be as secure, or offer the same protection to the truly sick (who rightly worry whether private carriers will take care of them), as a strong public plan.

On the other hand, precisely because these plans would be less aggressive about underselling private insurers and driving down reimbursements--and since they wouldn't be "government-run" in the way a strong plan would--they are more acceptable politically.

Unlike the Hacker version, which he's been promoting actively for more than two years now, this version appeared on the scene relatively recently--in the form of a paper by the New America Foundation's Len Nichols and John Bertko.

(You've read about both plans here in this space before. And you'll be reading plenty more in the future.)

DeParle's statement both clarifies and qualifies what Obama has said in the past. The administration likes the strong option, clearly, but they're open to the lesser version as well.

This is probably not what promoters of the strong plan were hoping the administration would say. But it's important they hear it, because it reflects the emerging political reality. I'd like the strong plan, too. But it's going to take a serious political effort to make that possible. The votes for such a plan aren't there yet. At least not where the votes count.*

*Standard disclaimer: I still think the controversy over the public plan remains secondary to the debate over how we find the money to pay for universal coverage in the first decade. I.e., groups busy promoting the public plan need to be spending more time and effort on laying the groundwork for a solution there.

--Jonathan Cohn