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On Friday, Senator Max Baucus (D-MT) spoke about his health care plan at the Center for American Progress.  You can listen to the Senator's remarks here.  Max Baucus’s thoughts on health care matter because as chair of the powerful Senate Finance Committee, which will play a central role in shaping health reform legislation, Baucus has become a leading architect of the legislation that will embody the Obama health plan.  However, the details of what Max Baucus might settle for may depart markedly from what President Obama promised on the campaign trail.

Max Baucus’s energetic and optimistic voice in heath care reform is welcomed by long-time health reformers.  Many of us remember that it was a former Finance Committee chairman’s disinterest in health care reform during the early years of the Clinton Administration that contributed significantly to the failure of reform in the early 90s.

With 30 years under his belt in the U.S. Senate, few would argue that Max Baucus is not well-spoken and adroit on the topic of health reform.  Not surprisingly, the Senator’s remarks on Friday were well scripted and on point.  But, we were provided a look at what’s really in the Senator’s mind and there is one area in particular that raises concern.

Public Option

Many agree that giving Americans an option to the private health insurance market is key to reform.  President Obama promised such a plan on the campaign trail.  Max Baucus made clear on Friday that keeping the public option “on the table” despite opposition from health insurers is central to the negotiations he must shepard as finance chairman.  That’s because he knows that powerful labor unions in particular have made the “public option” a part of their reform agenda.

But Mr. Baucus also said on Friday that there are several different ways of putting a “public option” into place.  He said that such a system could either allow Americans to buy into Medicare, or in the alternative, open up the Federal Employee Health Benefits (FEHB) program.  But the latter is just another health insurance controlled system and misses the real cost saving benefits of a public option based on Medicare.

A carefully constructed “public option” to private insurance would provide an antidote to the market consolidation that has propelled premium increases and administrative inefficiencies, shrunk coverage and degraded quality. However, it can only succeed if it:

•    Provides all Americans access to the largest risk pool possible. Universal access to Medicare provides the best option.
•    Includes new regulation of private insurers to level the playing field with the new public option–namely guaranteed issue, community rating, and a guaranteed base benefit.

The option to join Medicare, regardless of age, would be beneficial to Americans because by almost every measure, Medicare is cheaper and more effective than private plans, according to government and academic research.  For example, Medicare spends 2% of revenue on overhead; private insurers typically spend 25% to 27% for overhead and profit.

Medicare also comes with established relationships with health care providers which, though undercut by low reimbursement rates and a prescription drug program hamstrung by drug manufacturers, provide a solid base for expansion. Competition with a low-overhead health insurance alternative provided by Medicare will force private insurers to prove that they can be cost-effective while offering similarly comprehensive coverage.  Leveling the playing field between private insurers and the public option by requiring all players to guarantee access at a fair price would significantly reduce costs and increase access to health care.

FEHB is a poor choice for the public option.  FEHB, which provides health insurance for all federal employees, is a captive of private insurers.  Enrollees are provided a choice of high-quality insurance plans, but program costs are higher than need be due to insurer overhead and profit demands. 

To benefit from real savings, the “public” in public option must mean “public program.”  If not, then the public option will become a meaningless bargaining chip in the health reform debate that would be used to keep the stakeholders at the table, but provide most Americans with only table scraps.