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The Misplaced Concern About Whether the Public Option Would Be “Subsidized”

Matthew Yglesias had an interesting exchange with Kevin Glass over whether the public option, a government-run health insurance plan, can be “financially independent.” That’s related to Chuck Schumer’s proposal that public and private plans compete on a level playing field, with no “unfair subsidies” for the public plan.

Yglesias addressed the issue here, after Senator Mary Landrieu told reporters, “I’m not for a government-run, national, taxpayer-subsidized plan, and never will be.” She’s hardly alone in that view.

After noting that Steven Benen listed several “government-run, taxpayer-subsidized” health plans — Medicare, Medicaid, SCHIP, VA, etc — that Mary Landrieu already supports, Yglesias added:

The larger issue here, I think, is that unlike these programs the “public option” wouldn’t be a taxpayer-subsidized program. It would be a government-run health insurance plan that people could buy.

. . . which promoted the exchange with Glass about other government programs that are subsidized. As Yglesias argues, we subsidize Amtrak operations because Amtrak provides a valuable public service that would not likely be provided by the private market and/or if it depended solely on passenger fares.

But there’s more to how the “unfair subsidy” argument has been misused in the current health reform debates. Somehow many in Congress have got it into their heads that the federal government should not subsidize the public option, because that would somehow be unfair to private insurers who don’t get any federal subsidies. But of course, that’s wrong.

All of the insurance plans in the exchange(s), public and private, would be heavily subsidized by the federal government. Congress is currently debating how large those subsidies should be. And they could increase those subsidies in the future if needed to keep the level of uninsured to a minimum.

The governing principle underlying the health reform bills is that the nation cannot accept leaving 47 million people uninsured, leaving most poorly treated, many to die and more to face extreme financial hardships.

But the market has not, will not and cannot solve that problem. Even if there were no public option, the private insurers in the exchange(s) would not be able to provide decent, affordable coverage to the uninsured unless the federal government forced people to purchase insurance, taxed businesses and others and used the money to subsidize the premiums.

Government subsidies are needed to make the plans affordable. So you can bet that if the number of uninsured started to rise, because people couldn’t afford the rising premiums, the private insurers would be swarming Congress explaining how important it was to increase the subsidies to meet national goals of keeping these folks covered.

A public option would share in those subsidies, though the charge is that it would be disproportionate. But the public option isn’t just another choice, like the 4th or 9th private plan. It’s a necessary safeguard against private insurer practices that, despite regulations and cost-risk-sharing rules, will have powerful incentives to push high-cost patients out of the system or into discriminatory treatment.

The public option will perform the essential public function of making sure the toughest cases aren’t pushed out or discriminated against; they’ll still get affordable health insurance. It will also provide the public function of inducing private insurers to comply with the regulatory scheme, lest they mistreat people and lose market share. It could also perform other “public” functions, such as setting the model for provider incentives to help keep those costs under control. Whatever means the government uses to control costs — as in Medicare — should be employed by the public option too. That’s why linking to “Medicare+5%” makes sense — it reduces the need for subsidies.

Once the public option is understood as providing these essential public functions, the concerns about whether we might ever “subsidize the public option” are seen as completely misplaced. If we want to ensure adequate care for the uninsured through a mandate and exchange system, the government has to provide whatever subsidies are needed to sustain affordability for that coverage.

So of course it will be subsidized, because that’s inherent in the framework for making sure people who would otherwise not receive adequate care will be covered. It’s the same principle we use to sustain Medicare, Medicaid, SCHIP and so on.

If Congress has some other principle for guaranteeing coverage — say a universal single-payer system paid with taxes — let’s hear it. But so far, no one complaining about the “subsidy” issue has proposed one.

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John has been writing for Firedoglake since 2006 or so, on whatever interests him. He has a law degree, worked as legal counsel and energy policy adviser for a state energy agency for 20 years and then as a consultant on electricity systems and markets. He's now retired, living in Massachusetts.

You can follow John on twitter: @JohnChandley