The news yesterday was the Harry Reid would include a public option with an opt-out provision in the Senate bill. There has been some reporting Reid might not have the votes for the opt-out and might need to water it down to a public option “opt-in,” state-based public plans, or trigger. A public option opt-in and state-based public plans are two very different proposals that many in the media seems to be falsely equating.

A true public option opt-in would be a national public option that states would need to actively opt in to. The federal government would create a single public option entity, but it would only be able to sell health insurance in states that passed a law to allow the public option in their state. This would be similar to the opt-out proposal where states would need to pass a law preventing the public option from providing health insurance. Probably only a dozen of the very bluest states would pass a law opting in to a national public option. Compared to the opt-out, where the hope is only a dozen of the reddest states would pass a law opting out. Besides denying the public option to most Americans, the other big potential problem with the opt-in is that too few states will opt-in to the public option, and it would be unable to develop the sufficient customer base needed to be viable.

State-based public plans was an idea proposed by Sen. Thomas Carper. States already have the power to create their own public companies to sell insurance right now if they want. “Allowing” states to create their own public plans would in no way be a “compromise,” it is the status quo. Besides the federal government potentially providing states with a large quantity of seed money to help start up these state-based public plans, there really is nothing to this proposal. Given the strong restrictions it would place on potential state-based public plans, Carper’s original proposal would literally be worse than nothing at all.

A public option opt-in would create a single national public option that states would need to opt in to. It would probably be restricted to only a few of the bluer states in the country. A state-based public plan proposal would help states set up public plans if they wanted. They would probably only be established in the same few blue states, but suffer from several additional problems. Many states would probably be too small to properly support a public plan. Having several different state-based public plans would hurt insurance portability and would probably drive up cost since the many different public plans would lack the benefits of scale.

State-based public plans would be a substantially worse idea than a public option opt-in. I suspect the public option opt-in would be able to function (i.e. remain a viable entity that could sell insurance) but its impact would be extremely limited. Since it would operate in only a few states, I can’t see it improving our overall health care system or being big enough to really hold down premiums. Many of the state-based public plans, on the other hand, could easily be too small to even get off the ground or ever function properly. Since the state-based public plans would be limited to the roughly 10% of people on the exchange states like Vermont, Rhode Island, Iowa, West Virginia, Montana, Kansas, etc. would be too small to create a truly viable public plan. While some have confused these two ideas, there  is a dramatic and important difference between a public option opt-in and state based public plans.