Demise of the Public Option: Down for the Count, But Not Out?

Abstract

I always thought that market competition, for health care and for other goods and services, was a good thing, and I always thought that encouraging meaningful competition in markets dominated by a few large sellers was an especially good thing. In this regard, I found the prospect of using a government health plan--the option--to stimulate competition in highly concentrated health insurance markets to be an appealing feature of health reform proposals. However, as I listened to the debate over whether to include a public option as part of reform, it appears that my thinking has been somewhat cloudy and misguided. As congressional Republicans, pundits on the right, and some conservative Democrats have informed me, adding a new government-run health plan to our existing private health insurance market is possibly the worst thing that we could do to encourage competition, provide access to affordable coverage, and help contain costs. Through their vocal objections and legislative maneuverings to forestall a reasoned debate over the public option, let alone a complete health reform bill, it is clear these critics feel that eliminating the possibility of a public option is well worth the cost of stopping any health reform dead in its tracks. In my more lucid moments, I seem to recall that these were the same folks who lobbied rather strenuously against earlier efforts by the Obama administration to infuse a government presence in other troubled markets, including the teetering financial sector and faltering automobile industry, and to address the unscrupulous practices by some lenders in the consumer credit and home mortgage markets. Their faith in the self-correcting power of free markets, adherence to classical economic notions of individual and market behavior, and contempt for government efforts to prevent an economic catastrophe have, by some accounts, lent support to the very factors that were responsible for the worst economic crisis since the Great Depression (Akerloff and Schiller 2009). To take a more cynical but frequently documented view, the opposition to the public plan is but one manifestation of efforts by those on the right to see the Obama administration fail by denying the president a signature piece of social legislation. As I have noted in earlier columns, the general hostility to health reform and, particularly, the unwillingness to entertain the prospect of even a watered-down version of a public health plan, represent reactive responses based on ideology and adherence to political pressures rather than a reasoned assessment of approaches to help insurance markets function in the population's best interest. The tactics and reasoning used to sidetrack a public option reflect a willingness to turn a blind eye to important shortcomings of insurance markets, where competition has been characterized as based on favorable risk selection rather than efforts to reduce costs and enhance health plan quality. This is not to say that all insurers behave in ways that undermine the insurance function. However, practices in the small group and individual insurance markets, and information brought to light by the reform debate, give one pause when assessing the likelihood that the insurance market will function as intended without a significant government presence. As of this mid-December writing, the prospects for a public option and for reform itself have been mired in efforts to obtain the votes necessary to overcome a Republican filibuster. This threat to stifle debate is a sad commentary both on our legislative process and the willingness by some to sacrifice a basic element of social justice for their own parochial interests. Given the tenor of the debate over the public option, its removal from the Senate's health bill, and the contentious struggle for reform, it is important to consider why the apparent demise of a public health plan option may be short-sighted and may be temporary. …