White House backs away from public option in healthcare

The Obama administration signaled Sunday that it was on the verge of abandoning a government-run insurance option in its healthcare overhaul -- a bow to political reality and a big win for insurers.

But some experts said that may not completely relieve pressure on insurers to deliver cost savings.

Both Health and Human Services Secretary Kathleen Sebelius and White House Press Secretary Robert Gibbs said on Sunday talk shows that a government insurance option was not essential -- one day after President Obama himself said as much.

Private-sector options, such as insurance exchanges or cooperatives, would be likely to replace it. Obama already has proposed forming exchanges -- virtual marketplaces where private insurers would compete for consumers’ business. And co-ops would allow consumers to band together to negotiate coverage.

Sebelius told CNN’s “State of the Union” that a public option is “not the essential element” of healthcare overhaul, but that lowering insurance costs and preventing insurers from dumping customers for preexisting conditions or for exceeding coverage caps are must-haves.

“I think there will be a competitor to private insurers,” she said. “That’s really the essential part, is you don’t turn over the whole new marketplace to private insurance companies and trust them to do the right thing.”

Gibbs agreed, describing the “bottom line” for the president: “What we have to have is choice and competition in the insurance market.”

Obama continues to believe that “the option of a government plan is the best way to provide choice and competition,” Gibbs said on CBS’ “Face the Nation.”

But if there are other means to achieve that, Gibbs said, “the president will be satisfied.”

And a day earlier, Obama said at a healthcare forum in Colorado that “the public option, whether we have it or don’t have it, is not the entirety of healthcare reform.”

Proposals for a public health insurance plan have galvanized opposition from Republicans and some Democrats, who say a government insurer would have unfair advantages and destroy the private health insurance market in the U.S. Some of those who oppose the public option call it socialized medicine.

Such criticism has taken a toll on public support for how Obama is handling the healthcare issue. Last month, according to a Washington Post-ABC News poll, just 49% approved of the way he is handling healthcare -- down from 53% in June and 57% in April. Lower ratings reduce Obama’s leverage in Congress.

“The fact of the matter is there are not the votes in the United States Senate for the public option,” Sen. Kent Conrad (D-N.D.), a key Finance Committee healthcare negotiator, told “Fox News Sunday.”

Absent a public option, Congress is likely to focus on insurance co-ops and exchanges to cover the nation’s 46 million uninsured and to control rising healthcare costs.

Under one such system in discussion, all uninsured Americans would be required to buy insurance, with poor consumers receiving government subsidies.

To remove the incentive to cherry-pick, insurers with healthier enrollees would be required to make payments to insurers with less healthy customers.

In theory, at least, an exchange would save money because consumers would pick a plan that contained only what they needed and because health plans would compete on price for more customers.

However, some Democrats are likely to insist on including a trigger that would authorize establishing a public insurance option if the private market does not meet cost savings targets.

“They say, ‘We can hold down costs.’ Well, let’s see them do it,” said a liberal-leaning health policy analyst who asked not to be identified because he advises congressional Democrats involved in the policy debate.

Many advocates of a public plan had doubted that it could survive in serviceable form because of the intense opposition from insurers and other major health industry players.

“Better to have no public option than one that’s watered down and poorly designed,” the policy analyst said.

A spokesman for America’s Health Insurance Plans, the industry’s main lobbying group, declined to comment on a public insurance plan trigger. But in general, Robert Zirkelbach said, “We don’t support having a new government-run insurance plan.”

Zirkelbach also cited another potential sticking point: The industry wants consumers to be able to opt out of insurance exchanges and buy coverage elsewhere.

Another option, championed by Conrad, is a system of nonprofit cooperatives in which consumers would band together to negotiate coverage.

Conrad’s plan would set up state and regional co-ops. Critics say they wouldn’t have the clout to drive down costs significantly.

White House healthcare czar Nancy-Ann DeParle told Bloomberg Television this month that the administration would consider cooperatives as a substitute for a public health plan if Obama’s conditions for enhanced choice and competition were met.

If Obama abandons the public insurance option, it would be at least the second time he’s made major concessions to powerful stakeholders in the healthcare debate.

In June, the administration made a deal with the nation’s main drug lobby, the Pharmaceutical Research and Manufacturers of America, or PhRMA, which agreed to provide $80 billion in cost savings over 10 years and to promote healthcare reform in a multimillion-dollar ad campaign.

In return, the White House agreed to consider the $80 billion as a cap on PhRMA’s costs in the overhaul legislation. In addition, the White House agreed not to require rebates on sales of commonly prescribed drugs to patients enrolled jointly in Medicaid and Medicare.

Business and conservative groups blasted the deal because it obligates PhRMA to support other elements of Obama’s overhaul plan.

Liberals said Obama didn’t drive a hard enough bargain with drug makers. House Speaker Nancy Pelosi (D-San Francisco) said the House might not honor any deal with PhRMA.

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azajac@latimes.com