It just may be that some very smart people have inserted a section in the new health care reform legislation that is a Trojan Horse for the public Option. In sec. 1323 - COMMUNITY HEALTH OPTIONS, there are broad hints of public option styled health plans that can appear on state exchanges. when I first read this in the Senate bill, I tried to find out who put this in the bill. Nobody seemed to know - or they weren't telling. Now that it is law, it merits some close scrutiny. For those who like the public option, this may be very intriguing. At the very least, it begs the question of how this got into the bill.
Section 1323 follows the section establishing COOPs and needs to be read in that context. COOPs establish the vehicle for non-profits to develop insurance products for both the individual and small group market and must adhere to all the insurance requirements. In concept, as non-profits they can offer competition to commercial insurance plans on the exchanges. CBO doubted that there would be much market penetration by these COOPS, in view of their history. Following the section on COOPs comes section 1323 on Community Health Options. What makes CHOs unique is that, while they are also offered only by non-profit entities in the manner of COOPs, they are actually low-cost plans specifically for individuals who are eligible for tax credits. Not any other individuals - and certainly not groups. This eligibility is restricted to only those individuals who either cannot afford their employers plan, or low-income uninsured individuals not offered insurance by their employer (exempt small businesses). Remember, this is in the larger context of the individual mandate. COOPs, by contrast, are for both individuals and the small group market.
In theory, these plans will be priced below commercial plans because they have stripped the profit out. Even the reserve requirements appear to be less onerous for these CHOs. In one part, the bill talks about reserves as only needing to be an amount equal to medical claims incurred, but not yet reported. This is a much smaller requirement than insurance has. But then again, the insurance industry uses their reserves as investment assets too. So higher reserves means greater investment pools. In the case of these new CHOs, the plans only earn an admin fee which is set by the Sec. of HHS. Reimbursement rates to providers are also set by the Sec. of HHS and benefits are limited to only those cited in the law as the “essential benefit package.” If a state wants additional benefits in the package, they must pay the cost of the claims. In every other way these CHOs must comply with the insurance requirements in the new law.
So here you have what looks a lot like a public option. The Sec. of HHS sets up the benefit framework and reimbursement rates for these plans. the the Sec. of HHS then contracts out with an eligible (non-profit) entity to administer the contracts (pay the claims, marketing etc.) Eligible entities meet the criteria under section 1874A (a)(2) of the Social Security Act - that is the section for Medicare Administrative contractors. The government creates the health plan and then contracts with a qualified non-profit to run it - a lot like a public health plan for uninsured low-income citizens.
What will make this very interesting to watch is the impact these CHOs may have on commercial products. Imaging a company where the employer provides health coverage and pays the requisite 62% of the premium cost for a plan costing $5,000 a year to an individual. The employee pays $1,900 per year in premiums and the employer pays $3,100. For an employee earning $9 an hour, the individual can opt out of the employers insurance when it costs more than 9.5% of income. In this case the employers coverage cost 9.6% of income. So the employee can now purchase coverage through the exchange. On the exchange he sees a CHO that has the essential benefit for $4,000 - 20% less than the employers commercial plan. This employee earns just under 200% FPL and will receive a subsidy on the purchase of the CHO plan. With the subsidy his cost will now be $1,200 per year, or $100 per month. That's about 6% of his income. Remember, with the individual mandate, when the cost of the insurance available on the exchange is less than 8% of income, the individual must buy the insurance.
The real problem is for the employer. Every time one of his employees qualifies for coverage through the exchange with a subsidy, the employer is assessed a penalty. This is intended to prevent employers from dumping coverage on to the exchange and getting a free-ride. It won't take long before employers begin to ask why their commercial coverage cost 20% more than the CHO. In effect, a public option would begin to drive the cost down and there would be demand for greater access to the CHOs.
It would help a lot if we knew who exactly inserted this little bit of mischief into the bill and what their intentions were. In all the debate over COOPs, public options, and the rest - we never heard a peep about community health options. And yet section 1323 makes it very clear that anyone offering commercial insurance on July 1, 2009 does not qualify as an entity to offer CHOs. This is a battle for market share by a Trojan Horse of some type.