The politics of public option asymmetry

Let’s think this through. I’ll start. You chime in in the comments.


  1. Private plans participate in Medicare under Medicare Advantage and, for drugs, through Part D.
  2. With the exception of drug coverage, Medicare has a public option: traditional Medicare.
  3. Medicare Advantage plans and traditional Medicare do not compete under a competitive bidding regime, but it is one idea for program reform.
  4. I’ve not heard it argued that the role of traditional Medicare under competitive bidding would be to impose discipline on private plans, increasing their quality and decreasing their costs. Why not? Did I miss this argument? It certainly is not prominent.
  5. If traditional Medicare and Medicare Advantage plans were to compete on a level playing field (competitive bidding), one concern I’ve seen articulated many times is that traditional Medicare would experience adverse selection (left with the higher cost beneficiaries) beyond that which could be addressed through risk adjustment. This would increase its costs, potentially threatening its viability and, if not that, clearly tilting the playing field. This is one of the main, if not the main, arguments against competitive bidding. It is very prominent.


  1. The ACA exchanges will not have a public option.
  2. Advocates of a strong one wanted included in the exchanges a version of a public option that set provider payments based on traditional Medicare prices.
  3. Plans in exchanges will be subject to a competitive bidding regime.
  4. It was suggested by many that a public option would discipline the market, forcing private plans to increase quality and lower costs. This was a very prominent argument.
  5. I’ve have heard it argued that the public option would experience adverse selection beyond that which could be addressed through risk adjustment. I don’t think this was prominently discussed, but it was discussed. The concern doesn’t seem to strongly deter interest in a public option from some quarters. Nor is it used as a strong argument against one, not that I’ve seen anyway.

Questions and Hypotheses:

  1. Take another look at points 4 and 5 under each of the sections above. See the asymmetry? Why does it exist?
  2. Do the arguments for an ACA exchange-based public option apply to traditional Medicare and vice versa? Why or why not?
  3. My attempt to answer: A lot rests on the starting point and one’s political orientation or policy preferences. Medicare starts with a public option. None exists for the majority of consumers in the commercial market. With this, and once you know whether one is predisposed to prefer public or private solutions, you can make sense of the different perspectives taken on public options. My hypothesis is that to the extent they are differentially promoted for exchanges or in Medicare, the arguments of adverse selection and market discipline arise largely for political purposes. Otherwise, it seems to me we should view the exchanges and Medicare as technically equivalent with respect to these two issues.
  4. In the following two points, I will be blunt for the sake of clarity and to promote discussion. Please pardon the gross generalities, and feel free to offer opposing views in the comments. These are hypotheses, not assertions of truth.
  5. From the left: In its aim to preserve traditional Medicare, the left highlights adverse selection as a threat to it and downplays the discipline it might bring to private plans in competition. In its aim to achieve a public option in the exchanges, it does not view adverse selection as a reason to abandon pursuit of the goal or of the ACA’s competitive model. To the contrary, they find strength in competition by asserting that the public option, through it, will discipline the market.
  6. From the right: In its aim to promote private solutions, the right downplays the adverse selection issues that may arise if Medicare and private plans were to compete on a level playing field. Rather than Medicare disciplining private plans, the reverse is asserted. I’m not aware of a lot of specific attack of an exchange public option from the right on adverse selection or market discipline grounds other than, perhaps, the view that it would have an unfair advantage if it used Medicare rates. But Medicare uses Medicare rates and the right thinks private plans can do better in competition. So, ???.
UPDATE: After writing this post, I noticed Ezra Klein expressed ideas similar to some of the above in Wonkbook today.

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