The dangers of a fake public health insurance option

The White House and key Democratic senators, including Iowa’s Tom Harkin, appear to be walking into a trap for the sake of bipartisan agreement on health care in the Senate.

There is growing support for a fake “public option,” as opposed to a government health insurance plan that would compete directly with private insurance companies.

If Congress passes this kind of deal and President Barack Obama signs it, we will get a enormously expensive non-solution to an enormous problem, and Democrats will pay the political price.

After the jump I’ll explain why political hacks as well as policy wonks should refuse the latest efforts to derail the public option.  

Earlier this month, President Obama wrote this in a letter to key senators:

I strongly believe that Americans should have the choice of a public health insurance option operating alongside private plans. This will give them a better range of choices, make the health care market more competitive, and keep insurance companies honest.

The public option is anathema to Republicans and corporate Democrats, because it would give consumers more choices, especially in areas where one insurance company dominates the market. Also, a government-run plan would have lower overhead costs than private insurers, especially for-profit insurers that need to reward shareholders. Experts predict that tens of millions of Americans would choose the public option. Private insurance companies would have to change their business practices in order to compete.

With the president committed to a public option, the battle in Congress is now over what kind of program can be labeled a public option. When Dr. Howard Dean spoke at a health care forum in Des Moines on May 28, he warned about two leading “fake public option” proposals: the so-called “trigger” and something modeled on the health insurance benefit for federal employees, who can choose among a range of private health plans. Dean explained that the parameters for the “trigger” could easily be set so that the government-run plan would never be implemented. As for creating a new large pool for Americans to choose among private plans, he likened that to “throwing a trillion and a half dollars out the window,” because government funds would be subsidizing purchases of private plans with nothing to bring down costs or create efficiencies.

Many members of Congress who are big recipients of campaign contributions from the insurance industry are now pushing a third fake public option: cooperatives. According to Thursday’s Des Moines Register, this model has strong potential in the Senate:

[Senator Tom] Harkin said the cooperative alternative could be the compromise that brings a critical number of Democrats and Republicans together.

“We’re looking at it to see how it would work,” said Harkin, a top Democrat on the Health, Education, Labor and Pensions Committee. “There may be a few problems with it, but it just might work. I’m looking at it quite positively.”

Besides [Democratic Senator Kent] Conrad, Finance Committee Democrats Charles Schumer of New York and Chairman Max Baucus of Montana, and Republican Susan Collins of Maine have said they are favorable to the idea.

Harkin, who has said he supports including a government insurance program, said he would need to know whether the size of cooperatives would be enough to drive down costs. Policies should also be portable as people move from one region to another, he said.

But Harkin remained open to supporting cooperatives.

“They are member-owned. They have to elect their own boards and can set parameters. They can’t advertise, market or run up expenses,” he said. “It might work. There are a lot of people crunching numbers.”

I’m all for Congress allowing people to form health insurance cooperatives if some people believe in that model. If they work well, they will grow in popularity. However, cooperatives should compete alongside (not instead of) a real public option. Citizens need the option of buying into a nationwide plan like Medicare on day one, not years after discovering that the local cooperative is a raw deal.

Also, I can’t see how a policy from a state-level member-owned cooperative could be portable for policy-holders who move across the country. And if cooperative boards can set their own rules, where does that leave Americans who are currently uninsurable because of pre-existing conditions?

If the president truly believes in a public option, he should make clear immediately that cooperatives cannot be a substitute for a government-run plan.

Unfortunately, the White House is sending the opposite signal, as in this interview Health and Human Services Secretary Kathleen Sebelius gave the Associated Press:

“I think there is a lot of understanding that the private market has really failed to provide affordable coverage to Americans,” Sebelius said. The industry has had “a lot of opportunities” to get rid of coverage restrictions and other unpopular policies, Sebelius said, and really “hasn’t served Americans very well.”

However, Sebelius stressed that Obama is open to compromise on the shape of the public plan, which doesn’t have to be run by the government. She spoke positively of a compromise idea that envisions consumer-owned nonprofit cooperatives, like rural electricity or agriculture co-ops. They would get started with seed money from taxpayers but then compete without government control. The plan by Sen. Kent Conrad, D-N.D., may end up in a health overhaul bill to be unveiled by the Senate Finance Committee this week.

Nor have I heard the White House smack down the “compromise” plan backed by former Senate Majority Leaders Tom Daschle and Bob Dole. Daschle was Obama’s first choice to run the Department of Health and Human Services. Here he is alongside the leader of Republican efforts to kill President Clinton’s health care reform, proposing a plan with no public option–just a “‘federal fall back’ if the insurance companies didn’t or couldn’t implement cost-cutting and efficiency measures on their own.”

The White House and many Senate Democrats would rather have a bipartisan plan that could overcome a Republican filibuster than pass health care reform through the budget reconciliation process, which would require only 51 votes. As I understand it, using reconciliation would force Congress to revisit the issue in a few years, when the political climate might be less favorable for health care reform.

I see a lot more downside to weakening the plan in order to get Republican votes. On May 27, I spoke with Dean by telephone and asked him about efforts by Senator Ron Wyden and others to create a health care plan without a public option, with the goal of getting 70 to 80 votes in the Senate. Dean said “there’s no great grace in getting 70 votes” for a bill that doesn’t do anything. “All that’s going to do is bankrupt the federal treasury.”

If Washington Democrats lack the political will to support a public option for the right reasons (a Medicare-style plan would be more efficient, give consumers more choices and keep private insurers honest), maybe crass political calculations can bring them around to supporting a public option.

A recent NBC/Wall Street Journal poll found that

There was also support for the Democratic push to let people sign up for a public health-care plan that would compete with private companies, one of the toughest issues in the health-care debate. Three in four people said a public plan is extremely or quite important.

The same poll found high levels of concern about the budget deficit.

Obama and Senate Democrats need to ask themselves how Americans will like health care “reform” that costs over $1 trillion and fails to provide an affordable and accessible alternative to private insurance.

Maybe they think Democrats won’t get blamed for a costly failure to deal with a big problem. After all, Chris Bowers is right:

Bipartisanship has nothing to do with reducing the costs of health care or increasing access to health care. However, bipartisanship has a lot do with providing politicians political cover in the event that a piece of legislation fails to deliver on its ostensible purpose. […]

The purpose of bipartisanship is so that, in the event that you pass legislation that is unpopular and / or does not end up working, then it is impossible to take all of the blame for it.

The Chuck Grassleys of the world know better. They understand that a $1 trillion failure to solve our health care crisis will “prove” that Republicans were right all along: Democrats are incompetent, and “big government” is the problem, not the solution.

Democrats control the legislative and executive branches, and if we get health care reform right, we could achieve political realignment in our favor. If we screw up this chance, voters will hold us accountable. No one will remember how many Senate Republicans voted for the bill.

Dropping a real public option in the name of bipartisanship reminds me of some French guy’s comment from 200 years ago: “It was worse than a crime; it was a mistake.”

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