The Wonk Room

If Medicaid Experience Is Any Indicator, Public Option Opt-Out Compromise May Be Good Idea

Senate Democrats are “very seriously considering” “a compromise approach to health care reform that would establish a robust, national public option for insurance coverage but give individual states the right to opt out of the program“:

The proposal is envisioned as a means of getting the necessary support from progressive members of the Democratic Caucus — who have insisted that a government-run insurance option remain in the bill — and conservative Democrats who are worried about what a public plan would mean for insurers in their states….In conversations with the Huffington Post, sources have said that while the opt-out approach to the public plan is in its nascent stages it has been discussed with leadership in the Senate. It was pulled out of an alternative idea, put forth by Sen. Tom Carper (D-Del.) and, prior to him, former Senate Majority Leader Tom Daschle, to give states the power to determine whether they want to implement a public insurance option.

But instead of starting with no national public option and giving state governments the right to develop their own, the newest compromise approaches the issue from the opposite direction: beginning with a national public option and giving state governments the right not to have one.

The Huffington Post’s Sam Stein explains that “the ‘opt-out’ approach would start with everyone having access to a public plan. What kind of public plan isn’t yet clear. States would then have the right to vote — either by referendum, legislature, or simply a gubernatorial decree — to make the option unavailable in their health care exchanges.”

At first glance, the compromise preserves the original advantage of the public plan: it allows the plan to use its inherent efficiencies and market power to lower health care costs, promote delivery system reforms, and inject competition into concentrated health insurance markets. Red states, for all their political posturing, may weaken the reach of the national plan by opting out. But if the public option proves itself in states where it’s functional, then forgoing the public plan would be tantamount to imposing a tax hike on state residents. After all, why reject a program that offers lower premiums and saves the state billions in health care costs? Hot rhetoric about a ‘government-takeover’ of health care may sound hot on television, but it loses its fever when you’re trying to balance your books.

In fact, after complaining that Medicare/Medicaid would lead to socialism in America during the 1960s, all 50 states have chosen to participate in the Medicaid program — a jointly funded venture between the states and the federal government, which gives states the option to opt out. “Every state has been in Medicaid since 1982. None have ever dropped out,” Turtle Bay writes on Daily Kos. “True, Arizona wasn’t in until 1982, but that’s partly because for a state to get in, they had to actually set up a program.” The stimulus is another example:

And the stimulus — probably the best example of all, even though it isn’t clear that the states had any actual authority to opt-out. We saw the usual gang of idiots saying they were going to reject the stimulus, or in one case, actually attempt to do so over the objections of his state legislature. And what happened? We’ve got Bobby Jindal carting around oversized stealth stimulus checks to promote himself…

“The public option will be no different,” Turtle Bay concludes. “Once the die is cast, and this ’socialist’ system is in place, no state legislator is going to want to tell their constituents that they voted to take away something that would save them money, and that everyone else in the country is getting.”

All that may be true, but a real national public option is unlikely to come out of the Senate. If it fails, states would have to resort to state-based public options and they would have to establish a simple process for opting back into the plan (by requiring states to vote on the opt-out every year, for instance).