The Public Option Trigger Lock

[Update (10/9/09): Snowe’s Amendment still has not been voted on. However, numerous other proposals and compromises surrounding the public option have since been proposed. One interesting idea, is allowing states that do not want a public option to opt out. This is far better as it allows us to pass an effective public option immediately. We will see if conservatives are willing to vote to make healthcare more expensive in their states by removing the public option down the road.]

On Monday we finally received specifics on what a so-called “trigger” for the public option in health care reform could look like.  The trigger details what criteria need to be satisfied in order for a public option to go into effect.  Senator Snowe (R-ME) submitted the below amendment calling for a “safety net fallback plan,” which is a trigger provision for a public option.

Back in June, Natasha correctly outlined the fundamental problems with triggers and predicted much of what is revealed in Snowe’s current amendment.  Our health care system is clearly not working today -- waiting for even more conditions to change before enacting serious reform is simply unacceptable.

Here is the text of Senator Snowe’s proposed amendment:

This amendment establishes a non-profit government corporation through which a “safety net” plan would be provided in any state in which affordable coverage was not available in the Exchange to at least 95% of state residents. An individual would be deemed to have affordable access if either of two conditions is met.

First, two or more plans are offered with premiums – the cost of which does not exceed a specified percentage of the individual‘s adjusted gross income (AGI), after deducting any available tax credit or employer subsidy from the cost of such premium. The percentage contribution shall range from 3 percent of AGI at 133 percent of the Federal Poverty Level, to 13 percent at 300 percent and above.

Assessment of affordability shall follow submission of plan premiums filed one year in advance of the first day of each policy year, and should a state be found to not meet the 95% threshold, plans would be permitted to submit of any revised premium filings, after which a second assessment of affordability shall be performed.

If, after that second assessment, a state still be deemed as not meeting the affordability standard, the safety net plan shall be offered within that state, and shall be available at the pending open season enrollment.

Sadly there are numerous problems, many of which are technical in nature, with the outlined amendment.

Problem Number One:  High Premium Costs

Summary: Senator Snow believes that it is reasonable for an individual earning $32,490 a year to pay an annual fee of $4,223.70 (or $7,140.90 for a family of four earning $54,930).  This amount of money is simply too high to be spending purely on annual premium fees.

The Details: This is because Senator Snowe deems 13% of someone’s income at 300% of the Federal Poverty Level as an acceptable amount to be paying every single year for health care premiums alone regardless of whether or not the insurance is used or whether the user incurs additional healthcare related expenses (e.g. deductibles, co-pays, etc.).
According to a recent study by the non-partisan Commonwealth Fund, only three states have average premiums lower than 14% of their median income, down from 13 states in 2003. This means that in forty-seven of the fifty states, this hypothetical trigger would already be activated. 

This fact might actually make the trigger seem more reasonable, but the Snowe amendment allows for some creative loopholes.  The proposed limit for annual premiums is too high, but lower than it is now so you’d think that insurance companies would be forced to reduce health care costs to prevent triggering the public option, right?  Unfortunately that is not the case due to problem number two.

Problem Number Two: Limited Expense Tracking

Summary: Senator Snowe does not track all health care costs when determining if people can afford it.  Costs can skyrocket without any trigger being activated because only the costs of premiums (and not other medical expenses such as deductibles, copayments, or coinsurance) are counted.

The Details: Under this amendment, here is a possible scenario: Insurance companies do not want to trigger the public option, and reduce premiums to $4000 annually for someone earning 300% of the poverty level.  However, they instead raise deductibles substantially under their available plans.  You could end up paying thousands of dollars in deductibles without ever triggering the public option.

This is because rather than tracking annual spending on health care overall, Senator Snowe decided premiums are the only component of health care costs that need to be tracked.   Only increased premium costs (what you are required to pay on a periodic basis for your insurance coverage) can activate the trigger. It does not include deductibles, coinsurance, or copayments. 

What would be a simple solution?  After lowering the percentage to a more reasonable number, track how much people are spending on all their health care expenses instead of tracking the premiums in plans.  The IRS already collects this data from both individuals and businesses and this could be easily combined.  And the IRS already defines medical expenses in Publication 502 as:

Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. They also include dental expenses.

Problem Number Three: Limited Competition

Summary:  The trigger can only be activated if there are less than two plans meeting the criteria.  Two plans simply don’t provide a lot of choice. 

Problem Number Four: Piecemeal Implementation

Summary:  This trigger is employed on a state-by-state basis.  This means that if the trigger is actually activated across the country we are going to end up with fifty different public options, each only available to a single state. 

The Details: This would make the system more confusing and bureaucratic.  It would make more sense to have the trigger imposed nationally by either applying the trigger rules on the federal level or stating that if the majority of states reach the trigger point then a national plan becomes available. 

Problem Number Five: Delayed Implementation

Summary:  Under Senator Snowe’s plan, if the insurance companies can’t get their premium expenses right the first time, guess what? They get another chance.  The insurance companies have had years to make the system affordable; we cannot wait any longer for health care reform. Under this amendment, they get two chances a year to avoid setting off the trigger.

Pros & Cons

What do I like about this amendment?  It is good that the health insurance plans tracked must be in the new Exchange (a list of insurance options that meet federal standards and are available to uninsured individuals and small businesses) in order to be counted.  At the very least this is a further incentive for insurance companies to make sure they are participating in the Exchange. 

However, unless the annual fees are lowered and health care costs as a whole are tracked, this trigger will never be activated.

Full list of proposed amendments.

Tobin Van Ostern is the Network Associate at Campus Progress

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