Will The Public Option Fail?


Public option proponents knew they weren’t going to get the plan of their dreams when the House leadership agreed to drop the Medicare + 5% reimbursement rate formula, but may have been surprised when the CBO came back with an analysis saying that public plan premium rates will be higher than the private plans available in the exchange. How does that work? Well, as Brian Beutler explains the problem with putting a good health care option together is you might wind up with too many sick customers:

“The House bill does a very good job of setting up rules restricting cherry picking,” says Edwin Park, a senior fellow at the Center for Budget and Policy Priorities. But, he adds, “private insurers have years of experience gaming rules,” and will continue to do so.

“Insurers, just in terms of how they do outreach, how they market, are still going to be able to cherry pick,” Park says.

The second is that the public option will just be a gentler creature–it won’t erect as many restrictions on available providers and services as its private competitors will, and that’s likely to attract riskier consumers.

This is the fundamental issue with any mandate/regulate/subsidize approach. A lot is hinging on the “regulate” part. You need to get the rules against cherry-picking and the implementation of the risk-adjustment payments right. Some people see the public option as an alternative to faith in the capacity of the regulators, but absent adequate regulation the distortions in the market could just wind up bringing the public plan down.