By Matthew Holt

Not so long ago, July this year in fact, PhRMA boss and former Dem Blue Dog & Republican Billy Tauzin told the Aspen Health Forum that a straw poll of Democrats at dinner with him in DC all said that they didn’t think there’d be a public option in the final bill arriving on Obama’s desk. By the way Tauzin, Dashle, and the rest all said that there would be a health care bill passed in 2009 even though the summer of “death panels’ was just getting under way.

Now Jonathan Cohn at TNR is reporting (along with others) that Harry Reid is going to include the public option with an opt-out for states that don’t want it (think Red states), rather than the trigger (public option to come later if health care costs go up) or the co-op (moving the rest of the US to Seattle) alternatives.

This is a turn around—no question. It’s apparent that the summer of death panels actually hurt the anti-reform crowd. It’s also clear that the recent barrage from AHIP actually hurt its stated case against the public option—although as I’ve said on THCB I think that AHIP will do better with one in place.

But the problem is that this all disguises the real questions about the minor insurance reform we’re about to pass.

Instead the really important stuff is not being discussed. The key issues being lost are these:

1. How stringent are the rules going to be for insurers? Theoretically they wont be able to reject applicants based on pre-existing conditions. But we know that, even in the group market where theoretically the cost of individuals is not a factor, health insurers have found a way to play pricing games to get rid of people they don’t want. Meanwhile we know that right now insurers are putting costs up as much as possible—presumably to drive the worse risks out into the as yet non-existent public pool. A pool which, by the way, won’t be here for three long years. So will benefit levels, pricing, network rules, and lots more wrinkles, be clear and be enforced? And if so by whom. The Feds? Or the rather more pliable state insurance commissioners?
2. Who can be in the exchange? The assumption is that only a relatively small fraction of people will buy their care through the exchanges, and that the exchanges will end up looking more like the weak high-risk pools in states like California than the powerful public purchasers. Don’t forget that the Clinton plan was going to put basically half the population including all small business and Medicaid into its HIPCs. So the 2009 version starts as a 97 lb weakling. It’s still very unclear who will end up being able to purchase through the exchanges and what rules they’ll be under—although the backwards thinking of the unions means that Ron Wyden’s hope of making them a large factor is not going to happen. However, the more people who can buy through the exchange the more important they, and their regulatory structure, will be.
3. How are we going to make insurers compete on cost & quality? Here I channel my inner Alain Enthoven. It’s evident that we’re going to add more people to Medicaid and to private insurance. But there’s no mechanism that will force the insurers to actually take responsibility for the populations they are covering, and concentrate on delivering them better care for a lower cost. In fact that’s been absent from the insurance reform debate, no matter how much Peter Orzsag complains. Enthoven would say, give the people a voucher for the lowest cost plan and that will force the rest of the market to reduce cost to similar levels. Eliot Fisher might say, force insurers and Medicare to purchase using bundled payments tied to overall sensible population utilization metrics. More likely, none of the above will be in the legislation, and from adding 25–40 million people into the system we'll get inflationary tendencies only.

So the politics will continue, but the wrangling over the public option will obscure these rather more important points. Don’t get me wrong—as a taxpayer and a customer I don’t trust the health insurers at all and have no problem with a public option to keep them “honest” or provide competition. It’s just that I worry not enough attention is being paid to the portion of the market that’s being left outside of the public option conversation. 

Of course, back in the day Jonathan Cohn always made me answer the tough questions he didn't want to deal with. Perhaps he’ll do the honors this time and answer these three!