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Insurance 'Just Like Members of Congress'? Think Again.

It seems clear that the latest public option compromise being floated will bear little resemblance to the robust plan that liberals had originally envisioned. But it’s also possible that the current proposal to offer non-profit options in the insurance exchange--modeled after the Federal Employees Health Benefit Plan (FEHBP)--could result in coverage that's far less generous than what government employees receive and more expensive for those at certain income levels.

As David Herszenhorn explains, the federal plans cover about 87 percent of health costs for beneficiaries—the actuarial value, which is the average percentage of an individual’s expenses that insurer will cover. However, the mid-level “silver plans” in the exchange have an actuarial value of 70 percent, and the cheapest “bronze plans” have an actuarial value of only 60 percent. (By comparison, private employer-sponsored typically plans have an actuarial value between 80 and 94 percent.) But if a version of the federal plans were introduced into the insurance exchange, it’s unclear whether they’d retain their original value, or whether their benefits would be scaled back to fit the terms of the current health bill.

What’s more, Herszenhorn says, “the federal government, as an employer, typically pays 70 to 75 percent of premium costs with employees picking up the balance.” But within the insurance exchange, federal subsidies will cover anywhere between 35 and 96 percent of premium costs for families and 13 to 94 percent of premiums for individuals. As a result, according to the current legislation, groups at certain income levels would be paying significantly more in premiums than a government worker covered by a federal employees plan—and they’d be getting less in return.  

Therein lies the political danger of trying to replicate the FEHBP within the exchange as it currently stands in the bill: you can say you’re offering Americans the same health insurance options that Congress has, but the benefits and subsidies of those plans could be a far cry from what government employees currently enjoy.  What’s more, in order to court the votes of moderates like Collins, the Senate may be inclined to reduce—not raise—the actuarial value of plans within the exchange to make them cheaper, as I pointed out over the weekend.

That being said, by bringing the federal health plans back into the debate, liberals could ostensibly demand that the plans in the exchange come at least a bit closer to meeting that generous benchmark, regardless of what ends up happening to the public option compromise. As Jonathan and Ezra have suggested, strengthening subsidies and affordability provisions would be an obvious place to start. Absent such changes, the Democrats' promise* that Americans in the insurance exchange will receive the same health coverage as the members of Congress may amount to little more than a rhetorical flourish.

*As one of the commenters has noted, this was Obama's' tag-line for the reform bill from the start.