Friday, August 21, 2009

Put Your Money Where Your Mouth Is: A Public-Option Compromise

Nancy Pelosi says the House cannot pass a health care bill without a public option. Kent Conrad says there aren't 60 votes in the Senate for a bill with a public option.

So what's a party interested in governing the nation to do?

One compromise Congress sometimes uses in such situations is to enact a demonstration plan with a short-term sunset -- something like five years. That's a bad idea here. Any publicly run plan will require developing a network of providers, which takes time and--more important--money to put together. The fixed costs of setting up public plans around the country make a demonstration with a sunset wasteful. Moreover, there's little reason for providers to take seriously the bargaining power of a program they know may go away in short order.

Here's a better alternative: implement a permanent public option in some parts of the country, but not others. This approach makes both economic and political sense.

First, consider the economic front. Most types of health expenditures go to regional providers: doctors and hospitals generally provide brick-and-mortar service. So, most of the bargaining power and economies of scale that proponents argue a public plan will achieve should be feasible without a nationwide plan. If public-option supporters are right about its virtues, they can be acheived on a regional or state level. (The obvious exceptions are pharmaceuticals and medical devices, though few of the gains that a public plan's supporters project seem to have been based on these goods.)

Second, consider politics. Public plan opponents have conjured up various boogey men, with none appearing quite so often as the specter of "socialized medicine". Apparently a publicly funded health insurance plan will cost a lot and deliver low-quality care.

Let's leave aside a discussion of the status quo's performance on these dimensions for brevity. Instead, I'll point out that under my compromise, Congressional skeptics of a public plan could rest assured that no one in their districts or states had access to a voluntary public plan, preserving the status quo for their constituents. So, folks like Jim DeMint and Michele Bachmann wouldn't have to make constitutional arguments or threats of revolution against a public plan -- they could just make sure that neither South Carolina nor Minnesota is included in the public plan's coverage area. If they're right that the public plan will reduce freedom, kill grandma, destroy capitalism, or whatever, then they'll have an easy time pointing to the medical carnage sure to unfold in areas where people can choose a public plan.

Why is my compromise a good idea for supporters of a public plan? If they're right that the plan will cut costs, keep private insurers honest, improve quality, and so on, then it will do all these things in the parts of the country where it takes effect. People in the rest of the country will be able to see these virtues, and they'll clamor for a piece of the public action -- with the end result being a nationwide public plan.

It goes without saying that each side stands to gain electorally if it turns out to be right enough to convince supporters of the other (see Medicare and Social Security, for an example). And if no one can convince anyone else, it won't be the end of the world: some areas will have a public option and others won't. Other goals like universal coverage can be met with other measures.

How should we choose which areas should be served by a public plan? One novel option would be to include those congressional districts whose House representative votes yay and excludes those whose rep votes no (admittedly, it might be tough to write legislation that effects this without knowing ahead of time who will vote for it).

A more conventional approach would be to let the federal government set a standard package of benefits and premium levels and then allow states to decide via their usual legislative processes whether to participate in a federal-state partnership funded entirely or partly via federal tax dollars. This approach has been used for important federal-state programs like cash assistance and Medicaid, and it has both advantages and disadvantages. The devil would be in the details, but such a system could be designed to satisfy the claims of people on both sides of this issue.

So why not do it? Let's enact a permanent public plan that denies the benefits of a public plan to convervatives and imposes the horrors of socialized (financing of) medicine on progressives.

Update: Looks like Reps. James Clyburn, Louise Slaughter, and John Larson are thinking along similar lines....


  1. Jonah it looks like they don't need 60 votes for the public option.

    From an August 29th New York Times editorial (at:

    So how much of the proposed health care reforms could plausibly fit into a reconciliation bill [Such a bill cannot be filibustered; it only requires 51 votes]? The answer seems to be: quite a lot, though nobody knows for sure.

    Knowledgeable analysts from both parties believe that these important elements of reform will probably pass muster because of their budgetary impact: expansion of Medicaid for the poor; subsidies to help low-income people buy insurance; new taxes to pay for the trillion-dollar program; Medicare cuts to help finance the program; mandates on individuals to buy insurance and on employers to offer coverage; and tax credits to help small businesses provide insurance.

    Even the public plan so reviled by Republicans could probably qualify, especially if it is given greater power than currently planned to dictate the prices it will pay to hospitals, doctors, drug companies and other providers, thus saving the government lots of money in subsidies.

    End Quote

  2. I like the state opt in idea. This is a nice variation on the fallback option mentioned much earlier in the debate that seemed to appeal to Olympia Snowe.

  3. Conversely, how can private insurers who can only operate state by state compete with a public plan that can operate nationally?