Will a Public Option Really Be Financially Independent?

From the get-go it’s been clear that in order to gain adequate legislative support to be enacted into law, any public option would have to be financially self-sustaining. Financed, in other words, out of the premiums it charges rather than being a government program that’s partially funded from general tax revenue. Thus when Mary Landrieu said she couldn’t vote for a taxpayer subsidized public option I pointed out that she seemed confused since nobody is proposing to create such an option.

To this, Kevin Glass asks:

This might be a fine enough criticism, but are Matt and others on the Left willing to really stake their argument on the public option being a government corporation that is (at the very least) budget-neutral? This would be the exception to the rule of government corporations like the Postal Service and Amtrak that habitually hemorrhage money.

I think this is best decomposed into two different questions. One is could a public option actually make money. The other is were a public option to prove financially non-viable, would it actually pass out of existence or would the government just prop it up with taxpayer dollars.

On the first issue I don’t have a strong personal opinion, but the CBO seems to think it would work. And if we assume the risk-adjustment mechanism in the Exchange works how it’s supposed to, there’s no reason a public option shouldn’t be able to make money. If it doesn’t work how it’s supposed to, there’s going to be a problem, but it’ll be a problem that’s shared with a lot of private insurance. The USPS is a very different kind of thing, with a defined obligation to provide universal service at regulated rates irrespective of whether it makes money doing this (it doesn’t), competing with private industry on a different segment of the market, and stuck in an industry (moving pieces of paper around the country) that’s inherently on the decline for technological reasons.*

Amtrak helps shift us to the second question. As currently structured, Amtrak doesn’t make money.** Congress could refuse to bail Amtrak out in which case it would need to drop all its non-profitable routes but members of congress whose communities would lose service (which is to say pretty much everyone outside of the DC-Boston corridor) don’t like that idea so it gets funded. This is a matter of politics. Right now, there are 60 Democratic Senators of which it seems about 50–52 support a public option with the other 8–10 existing in various degrees of willingness to allow cloture on a bill that includes one. And that’s for a public option that the CBO scores as reducing costs, thus enhancing congress’ ability to hand out other goodies. A public option bailout would, by contrast, obviously score as budget negative. Are there going to be 60 votes for a public option bailout in 2023 or whatever? It’s hard to say for sure, but it’s not obvious to me what kind of structural shift would make the senate so much friendlier to the public option in the future.

* I should say that I’m quite sympathetic to the conservative critique of the USPS. For a long time, regular mail delivery was a critical public service but that’s not the case anymore. Congress could repeal the USPS’ monopoly on delivery of non-urgent mail, repeal the USPS’ universal service obligation, and sell the company to private investors. A number of countries have privatized their postal services in this way and it works fine.

** The conservative critique of Amtrak, by contrast, is ridiculous. Transportation infrastructure is a public service. We have tons of policies to ensure that communities are served by an adequate level of appropriate infrastructure. Rural areas have subsidized air service. Big cities have subsidized mass transit. Everyone has subsidized roads and highways. The question to be asked about any piece of transportation infrastructure — an airport, a highway, a bike path, a passenger train, a bus, whatever — is “does it make sense to build this?” not “will it turn a profit?” The critique of Amtrak is like slamming the Navy for hemorrhaging money when they could be hijacking ships.