The Public Plan Is Not the Same Thing as Cost Control

Ezra Klein is worried that opposition to any health care reform plan that does not contain a public option will prevent legislation that is “a useful first step” from moving forward. He argues that the public plans that have been proposed would do very little to control costs, so giving them up is not much of a sacrifice: 

The Public Plan Is Not the Same Thing as Cost Control, by Ezra Klein: This will not be a popular post, I fear. But one of the themes I’m seeing in a lot of the commentary is that the absence of a public plan is essentially equivalent to the absence of cost control, and the presence of a public plan is pretty much the presence of cost control. For the public plans on the table, that’s not true, at least not in any way I can see.

You can control costs in one of three ways: use less treatment, need less treatment, or pay less for treatment. The theory of the public plan rested on paying less for treatment, as Medicare does (though it’s important to note that Medicare’s costs are still rising at a totally unsustainable rate, albeit a slightly less unsustainable rate than private insurance). The problem is that the public plan no longer has the attributes that permit Medicare to pay less for treatment.

The strongest public plan on offer is in the bill being considered by the House of Representatives. This plan is limited to the health insurance exchanges, which are in turn limited to employers with fewer than 20 workers. So that’s the first point: The vast majority of Americans would be ineligible for the public plan, even if they wanted it. The CBO estimates that by 2019, the public plan would have a likely enrollment of 10 million Americans — and that estimate (pdf) imagines a world in which the exchanges are opened to businesses with 50 or fewer employees, which is to say, it’s more favorable than the actual bill.

The end result is that the public plan is unlikely to have a very large customer base, which means it will be unable to use market share to bargain prices far lower than private insurers. That might not matter if the plan could attach itself to the rates that Medicare uses. In the first draft of the House bill, the plan could do that, at least for its first three or four years of existence, after which point it was cut loose from Medicare. But the deal Henry Waxman cut with the Blue Dogs erased that advantage, and now the public plan, even in the House bill, is on its own. That is to say, the plan has neither Medicare bargaining power nor the sort of customer base that gave Medicare its bargaining power.

Is that an argument against the public plan? Nope. There are real advantages to the presence of a public alternative. Competition matters, for one thing, and there are a lot of states where one or two private insurers essentially control the market. Experimentation matters, too, and the public plan could be used alongside Medicare to test payment reforms and disease management programs that could pay off in the long run. The public plan could also usher in a fairly radical level of transparency in pricing and behavior, forcing private insurers to follow suit. And lastly, the public plan is something of a corporate accountability measure. Its presence in the market ensures that health-care reform won’t simply be a large reward to the insurance companies absent any serious changes in their behavior.

These were the original arguments for the public plan, and they’re as strong today as they were then. But they are not the same as cost control. … This step in health-care reform is largely about expanding coverage and creating a structure — with universality and the exchanges and so forth — that will make cost control easier down the road. None of the bills, on their own, really do all that much to control costs.

He’s correct – the options for a public plan that have been proposed do not do much to control costs, and even in this weakened form, there is still considerable opposition to the proposed public plans from the right. The frustration on the left is over why the proposals for a public plan are so limited. Why don’t they do more to control costs? Democrats control the White House and Congress, yet they cannot get this legislation passed? That is puzzling to many supporters. The practical realities of enacting legislation are far from the vision that many people had about what would happen after the election. For these people, cost control or lack of it is not the point, this is all about political power and allegiance to the people who put the president and congress in power. They would be far more willing to accept something like the Baucus plan if they felt that the administration had gone down fighting rather than giving in to the wishes of the other side whenever they manage to make a little noise.

I also agree with this. Here’s Paul Krugman discussing Obama’s health care speech to Congress tomorrow:

I, for one, won’t be obsessing about exactly which pieces of proposed reform he emphasizes — because that’s not what’s driving the politics. Americans haven’t become skeptical about Obamacare because they’d rather shave an extra $30 billion a year off the cost; they have not, contrary to “centrist” fantasies, been turned off by the details of the stimulus plan or cap-and-trade. What has been missing is a vision. And this is probably the last chance to supply that vision.

There are people on the left who want to feel as though they’ve finally triumphed over Republicans, and triumph has been defined, in part, as enacting a public plan (if for no other reason than the fact that Republicans oppose it). Compromise is not a win to many of the administration’s supporters, and that’s a problem since some form of compromise may be the only way to get legislation enacted. But if the goals are made clear, and that requires a clear statement of the administration’s vision, then a “win” can be clarified as well. Is the vision cost control? Expanded coverage? What is the main goal of reform? The administration needs a clear statement of where it wants to go and how the proposals on the table will get us there, it needs to give supporters something besides a public plan to rally around. If it can do that, then health care legislation that does not include a public plan can still be a “win” in the eyes of supporters.

Originally published at Economist’s View and reproduced here with the author’s permission.