Cantwell’s “basic health program” (section 1331 page 210) is one of the better ideas found in the Senate bill but not in the House bill. I support the basic health plan not because I’m a huge fan of the idea, but simply because I know the idea can work. It is clearly better than putting people on the alternative which is the state-based exchanges created by the Senate bill–these I know, in their current structure, will be pretty bad.

The new exchanges are too loosely regulated and allow way too much variation in insurance plan design. They foolishly divide the risk pool in two at the state level. The plans on the exchange should not be categorized actuarial value levels. The minimum actuarial value of a “qualified health plan” on the exchange is also way too low. It will leave millions of Americans dramatically underinsured. The exchanges will lack strong enough risk adjustment mechanisms and a minimum medical loss ratio. This combination means the exchange will be a very confusing marketplace, ripe for gaming the rules and cherry-picking the healthiest people. If they drop the public option, these exchanges would become an even worse place to buy insurance.

As I have explained before, the basic health program is much closer to how sensible countries have designed their regulated health insurance marketplace or exchange (see here and here).

If a state decided create a basic health program, everyone between 133%-200% of federal poverty level who does not have health insurance must take part. The program will be funded by the money the federal government would otherwise give the individual as affordability tax credits. The state designs a good “standard health plan” with set benefits, deductibles, co-pays, etc. The state then accepts bids from health insurers and/or establish provider networks that are willing to provide this well-defined standard health plan. The state uses economies of scale to negotiate the best deal possible.

The state accepts the best bids and allows everyone in the basic health program to select from the different approved insurers. There is no confusing array of choices based on different deductibles, actuarial values, and co-pays. The individuals know all the plans are very similar and are all decent. All insurance companies taking part must have a minimum medical loss ratio of 85% for their standard health plan. This ensures people are getting value for their health care coverage.

There are several problems with the basic health plan which limit the idea’s scope. The biggest problem is that if a state sets up a basic health plan, it would only get 85% of the money the federal government would have otherwise spent on tax credits in that state. I understand this was done for political reasons to show the basic health program would be a money saver, but I still think it is unfair. If a state implements a better program to provide health insurance for less money, they should be able to pass those savings on to their citizens in the program instead of sending most of the savings back to the federal government. At the very least, the basic health plan should get to use more of the money, say 95%. The other problem with the basic health plan is that it is only for individuals between 133%-200% of FPL.

There are several changes I would like to see made to improve the idea. First, I would like to see the reach of the program allowed to expand. I would prefer if the state had the freedom choose a higher limit for participation than 200% of FPL. It would also be a good idea if people above 200% of FPL could choose to buy into the program, or if insurers offering standard health plans as part of the program must offer the same exact plan on the new exchange.

I think it is very important to make sure that the new co-ops and public option could apply to be eligible insurers in the program. Currently, the proposed law technically restricts them to only offering coverage on the exchanges. Not being able to access the potential pool of customers could be very crippling to the co-ops and public option in these states.

Most of my concerns about provisions that limit the scope of the basic health program could ironically be solved by “Section 1332 Waiver For State Innovation.” In theory, starting in 2017 the state could switch from getting a waiver under the basic health program to a broader waiver under section 1332. The state would get all the money (not just 85%) that the federal government would have otherwise spent on tax credits. The state could essentially offer the same basic health program, but now with no income limit and more money to spend on the program. I guess the best hope right now is that 2014-2017 would be a transition period in some states proving how much better the basic health program is than the current exchange idea. Seeing how much better the basic health program works, starting in 2017, states with the program would redesign their whole exchange to be more like the basic health program.