Public (Option) Enemy #1

Senate Minority Leader Mitch McConnell (AP Photo/Ed Reinke)

For something very few people outside the Beltway have even heard of, the “public option” in potential health care reform plans inspires a lot of fear on Capitol Hill. Senate Minority Leader Mitch McConnell (R-KY) wrote a letter to President Obama in March declaring that he would not accept a health care compromise that included a public option. It wasn’t just McConnell—the ranking members of the Finance, Budget, and Health, Education, Labor, and Pensions (HELP) committees, Chuck Grassley (R-IA), Judd Gregg (R-NH), and Mike Enzi (R-WY), respectively, signed the letter as well.

Sen. Ron Wyden (D-OR), who has been championing his competing health care plan, declared to Politico that a bill with a public option would be unlikely to gain universal support. John McDonough, top aide for HELP Chairman Ted Kennedy, told Congressional Quarterly before Obama even took office that policymakers might have to scrap the public option to pass health reform. Now, Howard Dean is launching a grassroots campaign on the issue, asking voters to sign a petition declaring that “Any legislation without the choice of a public option is only insurance reform and not the healthcare reform America needs.”

Amid the hullabaloo, it’s easy for the non-wonks to get confused. The public option may seem like an unimportant detail, but it’s not. Many health care experts consider it a key component of health care reform resulting in lowered costs and increased access to health care. According to some activists, young people in particular stand to gain from this policy proposal.

What is a “public option” anyway?

The public option didn’t just magically appear in the public debate. Obama’s campaign health care plan and the white paper on health care Senate Finance Chairman Max Baucus released last year are both based on a proposal Jacob Hacker wrote for the Economic Policy Institute in 2007. Hacker’s plan outlines why the federal government should guarantee universal coverage by requiring individuals to purchase coverage (sometimes called an individual mandate) and requiring employers to help their workers pay for it. Of course, Obama’s original plan jettisoned the former requirement, something that earned him criticism from health care reformers during the campaign. The coverage would be made affordable through generous subsidies for those with low incomes, usually those who fall at 200 percent of the federal poverty line or below. Most critically, however, the Hacker plan allows individuals to choose to either buy into a regulated private insurance market and a government-run program similar to Medicare. This has come to be known as the “public option.”

If all goes well (or horribly, if you ask free-market types), the Hacker plan will push health costs down dramatically. The public option will have advantages no private plan has thanks to lower overhead costs. Private plans have to make enough money to cover marketing, advertising, higher payroll, and profit. Co-president of the Health Care for All Project Diane Archer says. Medicare typically has administrative costs of less than 3 percent, and a typical private plan has overheads greater than 11 percent. Archer expects that a new public plan will not be quite as efficient as Medicare, especially in its beginning stages, but over time the administrative savings should be substantial. What’s more, the size of the public plan would enable it to bargain down prices, just as Medicare can. Indeed, if the two programs were allowed to negotiate together—including prescription drugs, an area where Medicare is currently banned from bargaining on price—they could extract even more cost savings.

Why a public plan is good for young people

The public plan, both alone and as part of a broader health care package, would provide substantial benefits for young workers between 20 and 30. “Right now the insurance market is very, very difficult to navigate for a young freelancer trying to navigate the rest of their job details,” explains Matt Singer, CEO of the progressive activist organization Forward Montana. “The health insurance exchange/connecter outlined in both the Baucus and the Obama plans, plus the public health insurance option, will make the whole system more navigable for people overwhelmed with a lot of other pieces in the reform.”

Jacob Hacker himself thinks the exchange would be a key attraction to young workers. “I think that the exchange through which people buy private plans or enroll in the public plan should be attractive” to young people, he wrote in an email. He also emphasizes the upward pressure the exchange would put on coverage, potentially moving recipients away from “no-frills” packages. “No frills” packages generally have lower premiums, but provide less coverage with higher deductibles. They’re thus very attractive to young people, who tend to be cost-conscious and willing to accept more health risks, but they’re dangerous because they don’t provide much help if someone suddenly gets sick.

“There is a real question of how heavily regulated individual insurance outside the exchange should be,” Hacker acknowledges. “I would argue that the same rules should apply within and outside the exchange.” More than just making the health care landscape easier to navigate, an exchange with a public plan could keep young workers out of dangerous underinsurance situations.

Singer added that the cost savings of the plan would be particularly attractive to young workers’ employers. Based on his own experience running the health insurance plan for Forward Montana’s employees, an exchange including a public option would be helpful for those administrators determining health coverage for their young employees. “First, we’d end up in a bigger pool, which would bring our rates down,” he explains. In other words, the public option would have a larger group of people purchasing insurance than in pools of employer insurance plans, meaning that risk can be shared more widely, ultimately bringing costs down.

“Second, if we have access to a health insurance exchange that helps us navigate the differences between plans, we can find the best one for our three employees that is also cost-effective.” Singer even sees a potential in the plan for better coverage at colleges in universities. “We may see some schools, though, move into the public health insurance option,” he predicts, “and we may also see students move into the public health insurance option individually if it provides better coverage or more affordable coverage.”

In theory, the much lower price tag of the public plan could drive customers away from private insurers, leading, eventually, to an entirely public system. This is especially true for young people, who might choose the public plan initially—as Singer and Hacker suggest—and then stick with it.

Private insurance won’t disappear, but it might be better

Jonathan Cohn, a senior editor at The New Republic who specializes in health policy and author of Sick: The Untold Story of America’s Health Care Crisis—-And the People Who Pay the Price, doubted that the private market would be driven out of business entirely, but did think the public plan could still improve quality of care provided by private insurers. “A public plan, at least the kind under discussion, is unlikely to drive private insurance out of business,” he says. “But it is likely to change the way private insurance does business—and, over time, reduce the amount of business that private insurance does.”

“The best case scenario,” Archer says, “would be a vibrant insurance market in which private non-profit plans that put their members first—largely closed network HMOs—compete with a public plan that allows people to get care anywhere in the country.”

Even for-profit private insurance could be improved by the presence of the public plan. “It wouldn’t surprise me at all if a few of the big commercial carriers turn out to be pretty good at, say, care management and innovative home treatment,” Cohn says. So even if the health exchange proposed in Obama’s plan includes for-profit or other private entities, the care provided to young and old workers alike would improve.

The opposition to a public plan

Mitch McConnell and some of his colleagues, however, are convinced that a public plan would not just change but eliminate the private market for health insurance. “Forcing free market plans to compete with these government-run programs would create an unlevel [sic] playing field and inevitably doom true competition,” they wrote. “Ultimately, we would be left with a single government-run program controlling all of the market.” It does not matter, politically, what the most educated estimate of the public option’s impact is. When it comes to the public option, the paranoid convictions of Senate conservatives and moderates are more critical than the educated predictions of experts. For young people who stand to gain from the plan, this is a dangerous reality.

Archer thinks Ron Wyden’s pessimism of is unwarranted, perhaps warped by his experience trying to put together a coalition for health reform without support from congressional leadership. “On his own … he does not have the political clout to overcome … opposition,” she explains. Hacker agrees, saying some fiscal conservatives “would vote against a bill just because it contained a public plan.”

Cohn is less optimistic than Archer or Hacker. “As a description of the current political environment, I think, Wyden is right,” he says, but adds that a public plan without the ability to bargain down prices—along the lines of a proposal from Len Nichols and John Bertko—might fare better. By preventing the government from negotiating for lower prices, the Nichols-Bertko compromise would ultimately result in higher prices. In Cohn’s words, “the Nichols-Bertko plan would appeal to [conservatives] for the same reasons that, on substantive grounds, liberals like it less.” But lately even Arlen Specter, who has been the definition of moderate in recent years in the Senate, says this week that he’s open to a public option.

Cohn and Archer do agree that it will take outside pressure from grassroots activists and health care reformers to keep the public plan in the bill. According to Cohn, if the efforts of Dean and other grassroots campaigners fail to have an impact, it is doubtful that the public plan will make into the final health reform bill. “It’s going to take political pressure to make this happen and those are the groups that have to generate the pressure,” he argues. Archer agrees that outside pressure will be critical. “It’s up to the American people now to let their members of Congress know that they want a public health insurance option as part of health care reform,” she says, “We have to make them do it!”

Dylan Matthews is a staff writer for Campus Progress and a freshman at Harvard University.

Related Stories

• Gender-Neutral Housing Comes to Princeton
• Campaign Communications Director, Repower America
• Toke Up Marijuana Laws
• Send a Health Care E-Card
• The Battle for Pittsburgh