The Public Option and the Hope of Health Care Reform

Since the remarkable results of Nov. 4, there has been much discussion about the new progressive moment in which America finds itself. But it has actually been evident for some time that we're talking about old issues in new ways. Let's take just one -- health care reform-- which could actually happen next year. One thing we know is that there will be a serious, even vicious fight over the issue. What we don't know is whether President-elect Obama will seize the moment, or succumb to the same fear that has stayed Democrats' hands for so long.

In the presidential primaries, all three top Democratic candidates -- Obama, Hillary Clinton, and John Edwards -- featured in their health care plans something that would have been unimaginable just a few years ago, a public option. The public option is a government health insurance program akin to Medicare, which would be open to anyone. Credit should go to Edwards, who not only was the first of the three to propose it, but who said that if so many people chose the public option that over time it evolved into a single-payer system, that would be fine with him. That kind of talk used to come only from candidates with no chance of winning.

Although the public option wasn't the topic of a great deal of discussion during the campaign, for many progressives it amounts to a beautiful jewel hidden amidst a pile of compromise and disappointment. Ask average progressives what they think ought to be done about health care, and many will reply, "Well, a single-payer system would obviously be the best thing. But since that's politically impossible…" At the end of 2008, some things seem a little more possible than they used to.

That isn't to say a public option is just a modified single-payer system. It would be one option among many for individuals and businesses, and would leave the private insurance system in place (you can read more on the benefits of the public option here). But it does crack the door open for expanding the number of Americans who get their health insurance through the government. And this is what terrifies the insurance companies and conservatives. Their fear is that it will actually work. If the program operates well, more and more people will make the rational decision to choose it over private insurance (what we're supposed to do in a market, after all) and the insurance companies will lose customers.

For all their paeans to the power of private enterprise, we know that private insurers simply can't compete with the government, because they offer an inferior service at higher prices. We know this because of the example of Medicare, which operates more efficiently than private insurance (Medicare spends only around 2 percent of its costs on overhead, a fraction of what private plans do) and gets higher satisfaction ratings. We also know this because the government set up a program to allow private companies to compete directly with Medicare.

It's called Medicare Advantage, and the "advantage" was supposed to be that by allowing private companies to handle insurance for Medicare enrollees, costs could be reduced. Using their free-market mojo, the private firms would naturally bring in the coverage at a lower cost than having the big, bureaucratic government do it.

So does it work? Only if by "work," you mean "do the opposite of what it's supposed to." In fact, the government pays insurance companies more to provide a service it is providing to other enrollees for less. According to this recent report by the Commonwealth Fund, in 2008 the government paid Medicare Advantage plans 12.4 percent more per enrollee than it expended to administer traditional Medicare benefits (see this lengthy postby Maggie Mahar that lists the myriad ways Medicare Advantage amounts to an insurance company scam). It's no accident that the program in its current form was enacted as part of the abomination that was the Republicans' 2003 Medicare drug bill, a giveaway to insurance and drug companies so lurid it will stand as an eternal monument to legalized corruption. (The bill's chief architect, Louisiana Congressman Billy Tauzin, left Congress upon its passage to become the president of PhRMA, the lobbying arm of the pharmaceutical industry. Tauzin's starting salary was reported to be $2 million a year, a well-deserved reward for services rendered.)

One piece of good news on this front is that during the campaign, Obama pledged to "reduce waste in the Medicare system, including eliminating subsidies to the private insurance Medicare Advantage program" (you can read the promise on his campaign web site). That's one more promise he ought to be forced to keep.

But driving a stake through the heart of Medicare Advantage could wait (although Senate Finance Committee chairman Max Baucus has already targeted the program's "overpayments"). The Obama team has signaled that it has no intention of putting off its larger effort to reform health care. The appointment of former Senate majority leader Tom Daschle as both Secretary of Health and Human Services and White House "health czar" indicates that Obama wants reform that will actually pass Congress (recall that Bill Clinton's 1993 health reform effort never even came to a vote). Our once-in-a-generation chance to reform health care has come again.

There is no doubt that the insurance companies and their Republican allies in Congress will fight the inclusion of a public option with every bit of power they can muster. They'll call it "socialized medicine" -- but by now we should all have realized that Republicans will call any health care reform Democrats propose "socialized medicine" (that's what they said about Clinton's 1993 health plan, whose chief cost containment measure was enhancing the role of HMOs). They'll scream about "government bureaucrats getting between you and your doctor." But anyone who has tried to get reimbursement for a medical service from an insurance company that didn't want to provide it knows that government bureaucrats are pussycats compared to insurance company bureaucrats. Republicans will offer some bogus plan of their own, presented for no purpose other than pretending that they're not operating in bad faith. But their goal will be to stop any effort at health care reform – particularly the public option.

Republicans fear that the public option would work, and therefore undermine their broader arguments about the evil of government and the perfection of the market (and make voters thankful to Democrats to boot). All true. The insurance companies fear that the public option would work, and therefore put them out of business. Is that true? Not really. Although there are a lot of variables, a much more likely outcome would be that the insurance companies would continue to exist, but their business would shrink. If we're smart and lucky, we might end up with a system resembling the one they have in France (rated by the World Health Organization as the world's best), where basic health insurance is provided by the government, but most people have supplemental private insurance to fill in the gaps in coverage (the Prospect's Ezra Klein has helpfully laid out the basics of the French system here and here). That kind of hybrid system would still allow "choice,", yet cover everyone and hold down costs.

It's a beautiful dream, one that the insurance companies and their Republican allies in Congress will do everything in their power to crush. So the question is whether Obama will see the public option as something he will fight for, or as a useful bargaining chip to be sacrificed in order to get a bill through the Senate. In one troubling sign, John McDonough, Senator Ted Kennedy's senior health adviser, told Congressional Quarterly that the purpose of the public option was to "provide cost accountability," and "Maybe there are other way to achieve those ends." Ah, the time-honored Democratic tradition of making concessions before negotiations begin.

This is a different environment than it was even a few years ago, let alone in 1993 when Bill Clinton's plan went down in flames. The public is more open to ambitious government solutions to pressing problems than they have been in decades. And perhaps both big business and small business can finally be persuaded that a strong public insurance program is in their interest, since it will save them money (their prior opposition to health care reform has always been more ideological than economic).

Up until now, Barack Obama has displayed a keen understanding of when to compromise and when to fight. He surely knows that his attempt to reform our ridiculous health care system is going to be a fight from start to finish. Let's just hope he doesn't give up on the best thing about his plan.

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