• The Public Plan: Political Commentary on a Legislative Review

    This post has been cited in the 3 September 2009 Health Wonk Review, hosted by The Ludicious Project.

    A reader sent me Jacob Hacker’s 20 August 2009 paper Public Plan Choice in Congressional Health Plans, written for the Institute for America’s Future. The paper is a well researched and thorough review of current congressional activity with respect to the public plan element of health reform. It explains the rationale for a public plan, the variations in design currently under debate, the limitations of those designs, and how they can be improved.

    Hacker (Professor of Political Science, UC Berkeley) sees a threefold role for a public plan. I’ll call it the “three Bs”: (1) as a benchmark on cost and quality that private plans will need to meet in order to compete, (2) as a backup option that would provide security to those lacking good group insurance options, and (3) as a backstop to force down costs over time with payment and care delivery innovations.

    To meet these goals, Hacker argues that the public plan must (a) have an immediate network of existing providers, such as presumptive participation of Medicare affiliated providers (as stipulated in the House health reform bills); (b) set provider rates administratively like Medicare as opposed to negotiated rates like those of private plans (such a provision only exists in the House Ways & Means and Education & Labor Committee bills); (c) be accessible to larger employers in the future (as is the case with all bills passed out of congressional committees to date); (d) include incentives for innovation in quality improvement and cost reduction (true of all committee bills passed to date); and (e) include government drug price negotiation that applies to Medicare as well (as in the House Energy & Commerce version). These five criteria, if met by a public plan, would likely be sufficient for a public plan to meet the three Bs Hacker specified: benchmark, backup, and backstop.

    What Hacker’s paper is not (and is not meant to be) is a defense of the concept of a public plan. Therefore, what follows is not a critique of his paper. I’m just using it as a springboard to get a few things off my chest. Were Hacker’s paper a defense of the public plan idea it would have to establish that a system with private insurers only cannot more efficiently or effectively achieve the three Bs.

    This is not a foregone conclusion. There are other nations (for example Switzerland, about which Krugman wrote recently) that have a private plan based universal coverage program. If one is going to argue that we must have a public option then one must show that a private based system such as Switzerland’s (or those of other nations) cannot do just as well here.

    In comparing the likely effects of a private-only system, remade in some fashion by reform, with some public plan proposal one has a choice to make. Either one considers the likely effects of political forces or one does not. But one has to make that choice equivalently for both imagined systems. One can’t meaningfully compare a politics-free best-case outcome of one approach (like a public plan) to a politically corrupt version of another (like a private-only system). Doing just this is a favorite tactic of both sides in the debate over a public plan. It is an intellectually corrupt tactic. Don’t fall for it.

    Let’s look at the politics. If you consider the extent to which health reform legislation produced by congressional committees to date meet Hacker’s five criteria (lettered (a) through (e) in the third paragraph of this post), you will find that only two of the five key elements are unambiguously more favored than not. (Hacker provides a convenient table at the end of his paper that makes this plain.) This relatively low level of support for these key elements is one of many signals consistent with the idea that a public plan in the form he advocates is not politically viable.

    One reason for this inconvenient truth is special interests (of course). There is a subtle reason why one cannot ignore special interests that is not often mentioned in commentary on the politics of health reform. It isn’t just that special interests can weaken or kill a good plan up front (which they may well do), but they can undermine it later. That is, providers and insurers can undermine a well intentioned public program through rent seeking that makes a mockery of cost controls. We see this routinely in Medicare already via higher physician and plan payments despite prior legislation meant to control such things. We would see the same phenomenon with respect to a public plan for the non-elderly.

    But politics will muck up everything, not only a public plan but also the regulatory regime meant to reform a private-only system. Thus, the right comparison in forecasting how things will turn out one way versus the other is to consider a politically corrupted public plan relative to a politically corrupted private-only system. Which is more likely to produce outcomes we’d like to see?

    I wish I knew the answer to that question. But, I confess that not only don’t I know, I’m not even sure which one I want to see work out best. Therefore I’m not a full throated supporter of one way versus the other. Whichever reform path we follow I hope we produce the best possible system of its type, accounting for political realities. With respect to the public option, that seems to be what Hacker wants as well, though he ignores political realities (again, not a critique, just a fact). A companion piece of comparable quality as Hacker’s that outlines the best possible private-only system would be a welcome contribution to the debate. (Any readers who know of one, please send it my way.)

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    • Agree completely, on the financial merits.

      If you look at plans from the “do good” perspective however, (which means worrying about costs later–the likely end game no matter what we get), than the public plan likely gets the edge. It might be Mcaid on steroids after all is said and done, with paltry subsidies, but it is potentially the back up we dont have now, and probably wont in a private only system. Again, assuming two corrupt systems.

      • @Brad – One can go around and around arguing about what form health reform should take and what the likely outcome of that form will be. I’ve been arguing with myself about such things for months. So, to keep it going, there are lots of other developed countries with private only systems with much better control of costs than we (in the U.S.) have and with outcomes better than we obtain. I agree a public plan might do some good. I cannot claim with much certainty that it is the only means to a good end. I’d be lying if I said otherwise. I just don’t have that kind of crystal ball or enough faith in government (or enough faith in private markets). All I can say for sure is, I’m for something! Anything reasonable is likely better than the ad hoc patchwork system we have.