Why Cutting A Public Option 50 Different Ways Won’t Lower Health Care Costs

BenNelsonThe Wall Street Journal reports that Sen. Tom Carper’s (D-DE) state-based public option compromise is gaining steam among moderate Sens. Ben Nelson (D-NE) and Kent Conrad (D-ND):

The Delaware Democrat’s plan won praise from some in his party Tuesday as a way of bridging differences among them. “Conceptually, having the states take responsibility makes a great deal of sense,” said Nebraska Sen. Ben Nelson, a key voice for moderate Democrats. “It is important that we really take a close look at this.” He noted that states are already in the health-insurance business because they administer Medicaid and other federal-state programs. Mr. Nelson said state health plans could compete alongside the nonprofit cooperatives. Another Democratic centrist, Sen. Kent Conrad of North Dakota, said the Carper proposal was “very constructive.”

The compromise may make “constructive” short term political “sense”, but cutting a public option 50 different ways won’t lower health care premiums or change delivery patterns. Carper’s proposal would “allow states to individually decide whether to create a private-insurance competitor such as a government plan and a nonprofit insurance cooperative, or to open up state-based insurance pools for government workers to every resident.” But in the 30 states that already provide their employees with coverage through so-called mini public options or co-operative options, health care costs have not decreased. They’ve increased. The coverage may be good, but the price is still unaffordable.

The problem is, when you slice a robust Medicare-like public option 50 different ways, you rob the plan of any real ability (i.e. market clout) to lower health care spending or change the way care is delivered. For instance, if you replaced the national Home Depot corporation with a network of 50 loosely connected stores and then forced those individual businesses to negotiate independently with suppliers and develop their own delivery systems, costs would only increase. It’s by banding together as a single entity that large corporations are able to deliver services more efficiently and pass on the savings to their consumers. The same is true of Medicare and the national public option: its national structure is essential to delivering quality care more efficiently and streamlining delivery-system reforms.

Stripping the national public option of its national structure establishes a mere shadow of a public plan. Replacing a national public plan with a network of state-based options isn’t a compromise that sacrifices the means to achieve the same ends. It’s a compromise that sacrifices the ends.


I’m not arguing that a public option should take over the market. I realize that the Home Depot example could be used to justify private industry consolidation. But we’ve seen over 400 health care mergers in the last 10 years and premiums have increased nearly four times faster than average U.S. incomes. Private insurers have stomped out any meaningful competition and have stopped negotiating with providers on behalf of their beneficiaries.

I’m arguing that a national not-for-profit public option would have no incentive to increase costs. In fact as a self-sustaining entity (funded by premium dollars), the public plans would have to maximize efficiency. That kind of model could inject real competition into health insurance markets, forcing private insurers to lower their costs and adopt more efficient business practices.

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