What the Public Option MUST Have To Work

On Saturday I wrote about a piece by Kip Sullivan which attacked the Public Option on its own merits.  Kip’s most devastating, and I think, accurate, criticism was that the public option as envisioned by the current House proposal (let alone likely Senate modifications) is so weak it might not even survive.

Why?

• Because it has no built in customer base, which increases its upfront expenses for advertising and a sales-force significantly.  People who have company healthcare plans can’t join.
• Doctors, hospitals and so on are not required to accept it, and providers will not accept it if it provides below market rates unless it also provides large numbers of patients, which it can do because it isn’t pre-populated and isn’t a good buy for insureds unless it can provide a low premium, which requires it to pay low rates.
• It must make a profit in order to return the money up-fronted to it, and it has only 10 years to do that, but it has to start from scratch, as noted above.

Looked at through this lens, the idea that the Public Option will survive 10 years is ridiculous.  With these burdens, it can’t obtain the necessary number of insureds to allow it to negotiate provider agreements that are low enough to make it attractive enough to enough people to have enough people to negotiatite provider agreements which are low enough to… (well, I’m sure you see where this is going.)

This is a public option designed not just to never turn into either single payer (what Canada has) or comprehensive health care (what France has), it is a public option so crippled it may not even be able to get off the ground.  New companies have significant startup costs, there are massive barriers to entry in the health insurance field, and the term over which the public plan has to return its costs is too short.

So what does the Public Option need to work?

First: it needs to be populated with enough people to be viable. Here are some possibilities of how to do that without a lot of auto-enrollment.  You don’t need to do all of these, you do need to do some of them or something similar.

• On the income tax form, have an opt in box for anyone who wants to enroll, so that every American sees the option, without needing to see advertising
• If there is an individual mandate requiring people to buy insurance, if they don’t have it after the first year—if they haven’t bought, auto-enroll them at tax time into the public option.
• auto enroll everyone on disability into the plan, as top-off insurance.  Whatever the gap between what they get from their disability and public option is covered by the public option
• Veterans auto-enroll into the public option as well, in exactly the same way, as top-off insurance.  They still get all their veterans care, but anything that isn’t covered by Veterans, that is covered by the public option, they now also get
• everyone must be free to choose the public option, including people who are enrolled in corporate healthcare plans (this is baseline, this must be in the plan to give it the ability to drive down costs.)
• State rollovers.  If a state has a plan that doesn’t cover everything the public option does, then everyone on the State plan is automatically enrolled, and the cost of those health care services is taken out of Federal Medicare funds.

Institute enough of these policies, and the public plan can have a large enough enrollment base to matter, and because it is easy to enroll in can put price pressure on private firms.  But even with all of these, the public option will still start out not all that large and have trouble negotiating contracts.  So, what else do you need?

Second: it needs to work with Medicare and Medicaid.

• Negotiation must take place between the all three plans as one, and providers.  This will drive down prices the fastest.  It will not just help the public option, it will also drive down Medicaid and Medicare rates.
• If a provider accepts Medicaid or Medicare they must also be required to accept the public option.  No picking and choosing.
• The rate does not have to be the same as the Medicare rate, but it must be based off the Medicare rate.  The House plan is Medicare + 5%.  That’s fine.
• All limits on the ability of Medicare/Medicaid and the public option to negotiate prices with providers (for example, not allowing negotiations with pharmaceutical companies) must be removed.  Failure to do so will mean not only that costs won’t be contained, but that the government plans will be at a disadvantage compared to private plans which an do this.

The above are the minimum requirements to create a viable public option.  Public option advocates who are not willing to draw a line on the above are advocating for a plan which will, most likely, not survive—a plan that is not viable.  The cry of public option advocates has been “saving even a few lives is worth compromising!”  But if you compromise to the point where the plan is not viable, you’ve compromised to the point where there’s no point.

There are other requirements for a good public option, such as guaranteed issue, the whole population being enrolled in some insurance (mandates in the current debate), the plan being national in scope so it has scale, private plans being required to cover the same things as the public plan, and high enough subsidies so that everyone can actually be enrolled (if you insist on mandates).  Those requirements, however, seem to be better understood by public option proponents.  What is required for viability, however, does not seem to be.

The current House Plan is not viable as written and other options are worse.  There is no practical difference between no public option, and a non-viable public option and at that point the argument of “don’t let the perfect (single payer) be the enemy of the good (a public option which will save some lives)” becomes non operational.

I will be happy to support a viable public option.  So far we don’t have one.  I urge public option advocates, and even single payer advocates, to push for one.