The Public Option

Earlier this year I sat next to Jane Hamsher on a plane for an hour or so and we chatted about healthcare. No surprise what the main topic was: she was making the case for an uncompromising stand in favor of a public option, and I was arguing that insurance reform and subsidy levels were more central.  Also unsurprisingly, neither one of us changed our mind.

The demise of the public option, combined with the individual mandate, is at the core of the liberal dislike of the current Senate bill.  Jane summarizes the problem here in her list of ten reasons to oppose the bill:

1) Forces you to pay up to 8% of your income to private insurance corporations — whether you want to or not….3) Many will be forced to buy poor-quality insurance they can’t afford to use, with $11,900 in annual out-of-pocket expenses over and above their annual premiums.

This is hard to argue with.  It’s one thing to say that big profits for pharmaceutical companies are valuable because they fund future research, but insurance companies? I think Tyler Cowen is the only person I’ve seen even trying to make a case that private insurance adds anything much to the healthcare pie, and even he didn’t make much of a sustained effort.  Insurers are basically just middlemen, and they add virtually nothing to either the quality or availability of healthcare.

But I still think this needs to be unpacked a little.  First: there’s nothing wrong per se with taxpayer money going to private companies.  It happens all the time.  And what’s the difference between (a) paying money in taxes that then gets paid out to private companies and (b) being required to pay money directly to the same private companies?  Nothing, really.

So the big question isn’t whether the individual mandate is inherently offensive, it’s whether a public option improves it much.  And this is where I have a hard time accepting the argument that we should go ballistic over its demise.  Here’s the CBO on the various factors that would affect the cost of premiums if a public option were part of the healthcare bill:

Those factors would reduce the premiums of private plans in the exchanges to a small degree, but the effect on the average premium in the exchanges would be offset by the higher premium of the public plan itself. On balance, therefore, the provisions regarding a public plan would not have a substantial effect on the average premiums paid in the exchanges.

Roughly speaking, CBO says that less healthy people would probably choose the public option.  This decreases costs in the private sector but increases them in the public. Net overall effect: nada.  It just moves people around a bit.

Now, my own guess is that if the public option were more robust, and grew over time, it would have a larger effect thanks to administrative efficiencies.  But reality being what it is, I doubt that those efficiencies would amount to much more than 5%.  That’s about $500 for a $10,000 policy.

That’s not nothing, but it’s not much, either.  And it’s dwarfed by things like the size of the subsidies and future efforts to rein in healthcare costs.  I’d cheer getting rid of insurance companies, but the cost savings from doing so would be a one-time thing that would get eaten up within a couple of years or so.  It’s bending the growth curve of healthcare that’s more important, and insurance has very little to do with that. It mostly depends on reforming the provider side and the delivery systems, which can happen within either a public or a private system.

So I guess we come back to where we started: I’d love to have a public option in the Senate bill, but the ground-level benefits seem pretty modest. I just can’t see deep-sixing the whole package over it.  Better to pass it now and work on tightening the insurance reforms and expanding the subsidies in the future.  And maybe adding a public option someday too.


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