Ringo Chiu via AP
California Gov. Gavin Newsom speaks at a news conference after visiting a Kaiser Permanente warehouse in Downey, California, March 18, 2023.
Seventeen years ago, Yale University political scientist Jacob Hacker outlined a proposal he’d come up with for an agenda that the Economic Policy Institute was publishing for the next president—assuming that president was a Democrat. Hacker (who is now a Prospect board member) was proposing that the government create a “public option” for health insurance, under which Americans not yet eligible for Medicare could purchase a health insurance plan, equivalent to that provided by Medicare, from the government. As public-option plans didn’t have to deliver profits such as those that enriched major investors in private plans, they would be cheaper than their private competitors. And, by the logic of the market, they’d compel those private competitors to bring down their prices if they wanted to stay in business.
Hacker’s plan neatly threaded a political needle. Unlike Medicare for All, it didn’t directly threaten to take away anyone’s private health insurance plan. At the same time, the savings it offered consumers could eventually drive profit-driven insurance out of the market. The appeal of Hacker’s plan was such that the Democrat who was actually elected president in 2008 included it as part of the Obamacare package he presented to Congress.
Where, alas and alack, it failed to surmount the Senate’s 60-vote hurdle, due chiefly to the opposition of Joe Lieberman, the nominally Democratic senator from Connecticut, which, not coincidentally, was the home state of many mega-insurance companies (Hartford, Aetna, etc.).
But it was never the case that public options in health care had be confined to the consumer purchase of insurance. The state of California is now well on its way to creating a public option in the manufacture and distribution of medications.
Earlier this month, Democratic Gov. Gavin Newsom announced that the state had signed a $50 million contract with the nonprofit generic drug manufacturer Civica to produce insulin that will be available to Californians at a cost of $30 per ten-milliliter vial, which is what it will cost to manufacture and distribute it. The private companies, by contrast, generally price at ten times that level.
Newsom didn’t stop there. The affordable insulin will be the first drug made under the label of CalRX, and in announcing the deal with Civica, he said that the next drug the state was looking into manufacturing was naloxone, a lifesaving drug that can reverse the effects of opioid overdoses (the need for which has skyrocketed with the deadly advent of fentanyl). That drug, he said, would come in both injectable and nasal-spray form, and be made available over the counter.
The governor also pointed out what differentiated the state’s insulin manufacturing project from Eli Lilly’s and other companies’ announcements that they would bring down the prices they charged for insulin. Those companies are offsetting their price reductions, he noted, by raising costs on other drugs, with higher prices “shifted to everybody else.”
The new California initiative, he added, “fundamentally lowers the cost. Period. Full stop.”
The $50 million contract with Civica is funded by $100 million in the state budget dedicated to nonprofit drugmaking. As the state’s current budget totals $234 billion, the $100 million for affordable medications amounts to less than one-twentieth of 1 percent of the state government’s yearly expenditures. Which raises a question: Now that California has gone into the affordable medication business, why don’t other states follow suit? As all the other 49 states have smaller populations than California’s, they could spend a good deal less than $100 million to make and distribute such drugs to their own populations. It might cost them no more than one-twentieth of 1 percent of their budgets.
Do I hear a second? And is there any reason, other than the opposition of Republicans and the Joe Manchins of this world, why the federal government can’t go in for a kindred plan?
Analytically, I suppose California’s new venture is poised on the midpoint between capitalism and socialism. Having the state actually make and distribute the medications at cost is certainly socialistic at the point of production. That said, like Hacker’s public option, it will succeed strictly by the logic of the market: It offers consumers a better deal.
I actually think both Karl Marx and Adam Smith would approve of this venture (the kind of healthy bipartisan compromise all too rare in politics these days). Kathy Hochul? J.B. Pritzker? Joe Biden? How about you?
