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While Massachusetts reinvented its system, Arizona has for decades been using one element that will sound familiar, a public option. Arizona has a public option for small businesses.

NPR's Ted Robbins reports on the program's ups and downs.

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TED ROBBINS: Business is slow at Santa Theresa Tile Works in the downtown Tucson arts and warehouse district. One customer is in the showroom with owner Susan Gamble choosing among the brightly colored mosaic for a kitchen counter backsplash.

Ms. SUSAN GAMBLE (Business Owner): Got you in a direction.

Unidentified Woman #1: Yeah, okay.

ROBBINS: It's been slow enough that the six full-time employees here agreed to cut their hours to avoid layoffs until the economy improves.

Ms. GAMBLE: Everybody is working a 32-hour week.

ROBBINS: That's just enough to keep their health care through the Arizona Health Care Group, that's what the state calls it's publicly sponsored option for small businesses. Employees have a $2,000 yearly deductible and typical co-pays for doctor and hospital visits. But their premiums are less than half of what private insurers would charge. Business owner Gamble is happy with the plan.

Ms. GAMBLE: This public option has been working for me in comparison to what I can get. Yes, absolutely.

ROBBINS: Health Care Group began in the 1980s with grant money. The state began subsidizing it in the ‘90s. But enrollment was small, and so was the subsidy. Then, in the early part of this decade, Health Care Group decided to expand. It started marketing heavily, and enrollment tripled from about 10 to 30,000 members. That's when trouble started.

Many of the new members were what the insurance industry calls high risk. One patient alone had a blood disease which cost the group $1 million a year.

Ms. MONICA COURY (Spokesperson, Healthcare Group): So, it was sort of a perfect storm, if you will.

ROBBINS: Monica Coury is a spokesperson for Health Care Group. She says too many sick people were insured, administrators couldn't keep track of claims, and hospitals and doctors demanded top-dollar reimbursement, unheard of for a group plan.

Ms. COURY: We had new membership growth with a history of medical utilization that we were not appropriately or adequately aware of and increases in reimbursements to providers.

ROBBINS: Within three years, Health Care Group owed about $20 million.

Representative KIRK ADAMS (Republican, Arizona; Speaker, Arizona House of Representatives): And the taxpayers have had to come in to bail it out.

ROBBINS: Republican Kirk Adams is speaker of the Arizona House of Representatives. He opposes Health Care Group.

Rep. ADAMS: They don't have the incentive to run their program in terms from an underwriting perspective or from a cost perspective to make it work financially. And in my opinion, it is a harbinger of what we would see from a national public option.

ROBBINS: Adams knows the insurance business. He owns an insurance agency in Mesa, which sells health coverage through Blue Cross Blue Shield. He led a move a few years ago to take away the state subsidy, ordering Health Care Group to be self-sufficient. So Health Care Group limited enrollment, streamlined administration, raised premiums, and negotiated lower payments to doctors and hospitals. That, says Monica Coury, turned the public program around.

Ms. COURY: Currently, Health Care Group is operating in the black.

ROBBINS: Health Care Group is even paying off its deficit from previous years. Kirk Adams still argues that it unfairly competes by charging less than the private sector. Democratic State Senator Ken Cheuvront disagrees. He says Health Care Group provides care for workers who would otherwise be uninsurable. This year, Cheuvront co-sponsored a compromise with a Republican colleague to keep Health Care Group alive. Cheuvront says he's learned some lessons which would apply to legislators fashioning a national public option. The first seems obvious, educate yourself. The second, spread financial risk by enrolling enough healthy people.

Senator KEN CHEUVRONT (Democrat, Arizona): There are, of course, going to be sick people, but you also need the income from people who are not going to be, you know, spending $1 million on, you know, a blood disease.

ROBBINS: At last, says Cheuvront, give a public option time to work and time to change what's not working.

Ted Robbins, NPR News, Tucson.

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