The question as to whether a public option is important deserves rigorous scrutiny, but must be distinguished from a second question - is the public option essential?
The differences are not inconsequential. If robust reform is achievable with or without a public option, enormous effort and enthusiasm will now be justified to ensure the passage of reform legislation as a transformative change for the better in American healthcare. If, on the other hand, reform without a public option would be almost worthless, as some have suggested, little enthusiasm would be justified, and little would likely ensue.
There are "in-between" scenarios involving non-profit cooperatives, a "triggered" public option, or a public option as a pilot program in selected regions. Indeed, one of these may eventually emerge as a component of reform bills, but for the sake of clarity, I wish to consider only the stark alternatives - a public option or reform without it.
Here, I will make the argument that if other reform objectives are met, a public option as an additional component would be important, but far from essential. I hope others will offer their perspectives indicating why they agree or disagree. I also hope, however, that those opinions will be documented by evidence, so that we might all end up better informed. In the end, the public option is a policy rather than a religion, and its value must be decided on the basis of evidence rather than faith.
Let me start with the obvious - a public option would reduce the costs of health insurance premiums. To an important degree, however, the value of a public option depends on the extent and magnitude of that reduction. At this point, I would like to lay out, in two parts, what I consider relevant evidence. The first part concerns the level of impact that might be anticipated from a public option per se, and the second the impact of other reforms independent of the public option.
EVIDENCE BEARING ON THE POTENTIAL IMPACT OF A PUBLIC OPTION:
1. The cost of existing public insurance (e.g. Medicare) has been rising at rates similar to private insurance (about 8-9% per year).
2. Of the U.S. total healthcare expenses (almost twice that of most other industrialized democracies), private insurance profits account for less than 2%, and insurance company administrative costs about 6%. If all profits were eliminated, and administrative costs reduced to levels in other countries such as Canada, total healthcare costs would fall by only 3-4 percent. (Note that the above estimates are obtained by multiplying estimated reductions in private insurer costs by about 36% , which is their contribution to the total healthcare bill).
3. Almost all the excess healthcare costs (including excess administrative costs) reside within healthcare itself, due to duplicate or unnecessary facilities, tests, procedures, and specialty referrals based on a fee for service paradigm that encourages excess. Compared with these, insurance excesses are rather minor.
None of the above evidence refutes the conclusion that savings achievable with a public option are meaningful, but provides less reason to conclude that their impact will address more than a small fraction of the healthcare challenge. Among challenges not addressed are the abuses inherent in the insurance system independent of overall costs, and the huge excesses in healthcare outside of the insurance system. Let's look at how these might be addressed. Much of what follows is encompassed within proposed legislation, and much is already operative already in other nations with successful healthcare programs - some with dominant public insurance components and others that rely primarily on strong regulation of private insurers.
OTHER PROPOSED REFORMS WITH SIGNICANT POTENTIAL IMPACT
1. All individuals must be accepted by insurers, with no exclusions for illness or pre-existing conditions.
2. There can be no discriminatory rates for illness or pre-existing conditions, and only small differences for age.
3. No insurer can withdraw coverage from an individual who pays the premiums.
4. There can be no annual or lifetime caps on coverage.
5. All insurance plans must offer at least a minimum essential benefits package.
6. There will be limits on copays, and no copays for routine checkups (preventive care).
7. All individuals will be insured (with waivers in exceptional circumstances or with tax penalties for refusing insurance).
8. Low income individuals will receive government subsidies to render insurance premiums affordable.
Each of the above addresses inequities, but not cost containment. The following is a critical component of proposed reforms that directly addresses costs.
9. Minimum limits can be set on insurer medical loss ratios. These are the percentage of premium dollars that must be spent on medical care rather than profits or administrative costs. Many states already have established minimums (e.g., 70-80%). HR3200, for example, doesn't specify a figure, but allows this to be set in the future by the insurance commissioner or other authority, whereas the Senate HELP Committee bill sets the minimum at 85%. If this is set high enough, it would preclude excessive profiteering or insurer administrative inefficiency even in the absence of a public option. Note that this minimum can be set for each type of insurance (e.g. employer-based group insurance as opposed to individual coverage), so that insurers could be prevented from using a high ratio in one group to offset a low one in another group.
Assuming all these other reforms, many of which already operate in other nations, are implemented in adequate fashion, would the absence of a public option constitute a seriously damaging omission, or merely a moderate disadvantage in a program that is otherwise an enormous step forward?
To summarize the foregoing in another manner - if all individuals have adequate insurance (subsidized for affordability when necessary), and if insurers are required by law to spend the large majority of premium dollars on medical services rather than administration or profits, would not premium costs without a public option be only marginally higher than costs achievable with that option? Would not the percentage figures set for minimum medical loss ratios offer comparable opportunities to constrain costs, and deserve far more attention than the debate has focused on them?
My answer to the question I raise in the last paragraph is a tentative "maybe but not necessarily". Here is why.
To reverse the unsustainable trajectory of high and rising costs within healthcare itself requires major restructuring to incentivize elimination of unnecessary services, and to reward quality rather than quantity of the services delivered. Proposed legislation begins to address this issue with demonstration projects testing alternative healthcare delivery mechanisms, incentives to increase primary care, and funding for comparative effectiveness research to develop guidelines helping physicians decide what works and what doesn't (or may even be harmful). Among the alternative delivery mechanisms are accountable care organizations (ACOs) that receive payments in exchange for providing necessary care as an integrated package rather than uncoordinated services from providers acting without reference to each other. This mechanism rewards good outcomes but penalizes unnecessary expenditures, and can thus reduce costs.
Let us consider a community with a few large, well-established hospitals and provider networks, and an upstart ACO with few patient subscribers to date. Let us assume that it can afford to charge as little as $7000 annually for patients whom the established providers would charge $10,000 due to duplication and inefficiency. We will also assume private insurers must spend 80% of premiums on medical services, and can keep 20% for profit and overhead. If they spend $10,000 in paying the established providers, they can therefore keep $2,500, whereas if they pay the ACO $7,000, they keep only $1,750. As long as the ACO is too small to attract many patients away from the established institutions, it benefits the insurers to cover patients these institutions serve rather than ACO patients, simply passing the extra costs on to subscribers. In the long run, a growing ACO would provide formidable competition to the establishment and a major attraction to insurers, but private insurers tend to respond to short term demands from investors. In contrast, a public option, particularly with startup subsidization by the government, could in theory invest in a contract with the ACO with the goal of helping it grow to a point where it replaces more expensive providers for many patients.
To what extent would this scenario play out with a real world public option? I doubt that anyone can predict the answer with accuracy, nor is it fair to claim that only a public option would enable ACOs to grow and eventually serve as major cost reduction mechanisms. It is these uncertainties that make it difficult to judge the eventual importance of a public option independent of its short term ability to achieve minor cost reductions beyond those achievable by a robust reform program lacking a public option. The additional benefits might ultimately prove substantial, but they might equally prove trivial if healthcare costs can be constrained via comparative effectiveness research and the natural growth of ACOs or other alternative provider mechanisms. To me, the uncertainty is a signal that I should refrain from excessively dogmatic claims. Even so, I would argue that proposed reforms outside of a public option will represent major advances toward the eventual goal of high quality affordable healthcare for all, and do not deserve to be belittled. It would be truly unfair the characterize them as "worthless". My personal enthusiasm for them will remain high, even as I hope they may be supplemented by a public option in its strongest form. The likelihood that a public option would be less critical for robust reform than other reform options in no way detracts from the firm conclusion it would be important.
In asking for the views of others, I would again urge them also to refrain from dogmatic assertions of belief, and instead document all claims with the most persuasive evidence they can muster.