By Lambert Strether of Corrente.

Readers, I’m sorry this is later than I planned for; I ran into some unexpected logistics difficulties.

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With ObamaCare as presently constituted appearing to enter a death spiral, its advocates, just as they did in 2009, have deployed the so-called “public option” as a line of defense against single payer. The chorus of opinion-makers and thought leaders is suspiciously unanimous.

I’ll start with Russia Today, just to make it clear this is all Putin’s fauit: “Millions of uninsured Americans yearn for public option as insurance giants bail on Obamacare.”

Then there’s Obama himself, in his JAMA article (dissected here): “Policy makers should build on progress made by the Affordable Care Act by continuing to implement the Health Insurance Marketplaces and delivery system reform, increasing federal financial assistance for Marketplace enrollees, introducing a public plan option in areas lacking individual market competition , and taking actions to reduce prescription drug costs.”

And then there’s Hillary Clinton herself, who will (as part of her deal with Sanders) “pursue efforts to give Americans in every state in the country the choice of a public-option insurance plan .”

And then of course there’s Jacob Hacker, author of all the mischief, who weighs with a Times Op-Ed: “[ObamaCare] could use improvements — and right now, the most critical of them is to add a ‘public option,’ available in all parts of the country, that would allow Americans buying coverage through the Obamacare ‘exchanges’ to enroll in a public insurance plan modeled after Medicare.”

Attentive readers will have noticed significant differences in each description: Obama’s “public option” would be available only “in areas lacking individual market competition,” “Clinton’s “in every state in the country,” and Hacker’s would be “modeled after Medicare,” which the other two explicitly do not mention.[1] The slippery, shape-shifting, amorphous character of 2016’s “public option” — why I label it “so-called” — was also characteristic of the 2009 “public option”.

Readers may not be familiar with the history of the “public option”, or its protean and ever-shifting nature, or its structural problems, given that the role played by single payer advocates in the 2009 battle, and their policy critiques, has been generally suppressed by the victors. (And you’ve got to admit, “public option” sounds so good; it’s like a policy earworm. The wee problem is that the “public option” hijacks Medicare’s branding, and plays on the public’s desire for a universal, Medicare-like program, but cannot deliver anything like Medicare; hence the shape-shifting and equivocation. In fact, “well over half of Americans want to replace Obamacare with a single-payer system. That figure, amazingly, includes 41 percent of Republicans and Republican-leaning independents,” showing the combination of timidity and cognitive capture so characteristic of the Democrat establishment (including its “progressive” faction) on health care policy (or indeed any policy). As usual, TINA.

The official history of the publlc option is well-presented in the current issue of the authoritative Health Affairs; I’ll add the underground history as commentary on extracts from that piece. Then I’ll consider structural problems with the “public option”. Finally, I’ll consider the “public option” as just another shopworn neoliberal scam, which is where the Underpants Gnomes come in.

History of the So-Called “Public Option”

Starting, then, with the official history, from Health Affairs, “The Origins And Demise Of The Public Option,” by Helen A. Halpin,* and Peter Harbage. I’m going to start from 2009[2], when the battle to pass ObamaCare (and suppress single payer) began; I’m going to call Halpin and Harbage HH for short.) Here’s the state of play after the inaugural:

Following President Obama’s inauguration in January 2009, the U.S. Congress began its work on comprehensive health care reform. House Speaker Nancy Pelosi (D-CA) pledged at the time that the House bill would include a public option.15 Indeed, a public option offered through a private insurance exchange was included in all three versions of the bill passed by House committees in the summer of 2009 (House Ways and Means and House Education and Labor on 17 July 2009; House Energy and Commerce on 31 July 2009), as well as in the bill passed by the full House of Representatives on 7 November 2009 (the Affordable Health Care for America Act, HR 3962). A public option was also included in the bill passed by the Senate Health, Education, Labor, and Pensions Committee on 15 July 2009 (the Affordable Health Choices Act, S 1679).

Here’s the underground history (or, I should say, the history; the HH timeline is truncated). PNHP’s Kip Sullivan writes:

There have been three cycles of health care reform in the last half century – 1970-73, 1992-1994, and 2007 to date. At the dawn of each cycle, single-payer legislation had already been introduced. But early in the cycle, single-payer legislation was ‘taken off the table’ (to quote a statement Sen. Max Baucus now wishes he had never made). Each time the Democratic leadership chose instead market-based proposals that had no track record and no evidence to support them. Each time they favored reform deemed more ‘politically feasible’ than single-payer because it left the insurance industry in place. In all three cycles, the alternative, market-based proposal was promoted by one or two policy entrepreneurs (that is to say, it wasn’t an idea that bubbled up from the grassroots).

In the 1970-73 the neoliberal proposal was HMOs; in 1992-94 the neoliberal proposal was HillaryCare (her first real debacle); and in the 2007 cycle we got ObamaCare.

HH go on to write:

The public option was the darling of the progressive wing of the Democratic Party. It also proved to be surprisingly resilient and popular among the public, as measured in opinion polls. The strongest supporters included progressive interest groups led by labor unions—most notably the AFL-CIO and SEIU—consumer groups, and civil rights organizations. The strongest opponents were the health care and health insurance industries, conservative interest groups, and small businesses represented by the Chamber of Commerce and the National Federation of Independent Businesses.

More underground history: As far as popularity among the public, I would urge that was due to successful brand confusion between Medicare for All (at that time, and still, more popular). Second, the “public option” was by no means “the darling of the progressive wing of the Democratic Party,” if single payer advocates — who HH suppress from their narrative — be included. And as far as the progressive role of unions, I remember very well how the SEIU funded a daily health care post at a now-defunct progressive blog, that never mentioned single payer once. A summary of what single payer advocates were up against; I hate to keep quoting myself on this, but the history is important and has been systematically erased:

Oddly, HH omit all this material. In fact, there’s a single mention of single payer, in note 5: A 2003 article by Halpin. Of course, I’m not saying that all public option advocates are intellectually dishonest; I am saying that you, readers, should be aware of history and look for priors (especially from policy entrepreneurs like Hacker). HH continue:

A public option offered through a private insurance exchange was included in all three versions of the bill passed by House committees in the summer of 2009…. Senate Democrats were engaged in a highly contentious debate throughout the fall of 2009, and the political life of the public option changed almost daily. The debate reached a critical impasse in November 2009, when Sen. Joseph Lieberman (I-CT), who usually caucuses with the Democrats, threatened to filibuster the Senate bill if it included a public option… During this period, several alternatives were considered. One compromise proposal included a Medicare buy-in for people age fifty-five and older. However, both Senator Lieberman and Sen. Olympia Snowe (R-ME) opposed the Medicare buy-in, which evoked concerns similar to those raised about the public option. Sen. Kent Conrad (D-ND) proposed using nonprofit health care cooperatives to compete with for-profit plans, but this concept also sparked little enthusiasm.. Debate over the public option continued as additional proposals were made to narrow eligibility for the public option and to raise the rates paid to providers above Medicare levels. When those, too, failed to garner enough support, the public option was eliminated from the Senate bill.

(Oddly, HH omit the role Obama played in removing the public option; note the lack of agency in “was eliminated.”)

The underground history: Reading between the lines here, you see the Protean, shape-shifting nature of the so-called “public option”; it’s almost as if there was never a real proposal at all (as compared to single payer, for which legislation had been drafted: HR 676 from John Conyers, and SB 703 from Bernie Sanders). Looking back on the role of previous market-based derailments of single payer, Kip Sullivan labels the “public option” a bait and switch operation, and looking at outcomes, it’s hard to disagree:

The people who brought us the “public option” began their campaign promising one thing but now promote something entirely different. To make matters worse, they have not told the public they have backpedalled. The campaign for the “public option” resembles the classic bait-and-switch scam: tell your customers you’ve got one thing for sale when in fact you’re selling something very different. When the “public option” campaign began, its leaders promoted a huge “Medicare-like” program that would enroll about 130 million people. Such a program would dwarf even Medicare, which, with its 45 million enrollees, is the nation’s largest health insurer, public or private. But today “public option” advocates sing the praises of tiny “public options” contained in congressional legislation sponsored by leading Democrats that bear no resemblance to the original model. According to the Congressional Budget Office, the “public options” described in the Democrats’ legislation might enroll 10 million people and will have virtually no effect on health care costs, which means the “public options” cannot, by themselves, have any effect on the number of uninsured. But the leaders of the “public option” movement haven’t told the public they have abandoned their original vision. It’s high time they did.

I could give more detail — 2009 was a feisty year — but I hope this material is enough to persuade you that “The Origins And Demise Of The Public Option” is, as it were, a case of “Hamlet without the Prince”; a principal actor is gone. I hope you are also persuaded to apply a hermeneutic of suspicion to the “public option,” and to its advocates, based on these fragments of underground history.

Structural Problems with the So-Called “Public Option”

It’s impossible to tell — once again, given the slippery and amorphouse nature of the “public option” as an actual, concrete policy proposal — what the real problems with this year’s model are going to be. But we can hazard some guesses, based on what its advocates themselves said in 2009, and on issues posed by the Physicians for a National Health Care program, the premier research source for single payer material

Here’s what Hacker said it would take to make the “public option” work in 2009:

Hacker’s papers laid out these five criteria that he and the Lewin Group said were critical to the success of the “public option”: The PO had to be pre-populated with tens of millions of people, that is, it had to begin like Medicare did representing a large pool of people the day it commenced operations (Hacker proposed shifting all or most uninsured people as well as Medicaid and SCHIP enrollees into his public program); Subsidies to individuals to buy insurance would be substantial, and only PO enrollees could get subsidies (people who chose to buy insurance from insurance companies could not get subsidies); SThe PO and its subsidies had to be available to all nonelderly Americans (not just the uninsured and employees of small employers); The PO had to be given authority to use Medicare’s provider reimbursement rates; and The insurance industry had to be required to offer the same minimum level of benefits the PO had to offer. Hacker predicted, and both of the Lewin Group reports concluded, that if these specifications were met Hacker’s plan would enjoy all three of Medicare’s advantages – it would be huge, it would have low overhead costs, and it would pay providers less than the insurance industry did.

Of course, none of that happened, which did not prevent the “public option” advocates for continuing to push it. It also seems unlikely that whatever the “public option” turns out to be in 2016, that it will not meet these criteria either.

And here are the issues posed by PNHP:

Myth: A public option will force private health insurers to compete on a level-playing field, especially in limited markets. Fact: The Medicare HMO experience shows private plans undermine fair competition despite regulations. They avoid the expensively ill (called “cherry-picking”) and use their marketing power to attract the healthiest patients. Private HMO Medicare also costs 12 to 19% more than traditional Medicare despite having a healthier population. The current Medicare experience combined with experience in many different states that have tried this type of reform shows that public plans are left with the sickest patients and fail due to rising costs while the private insurers continue to collect premiums from the healthiest patients and maintain their high profits.

Myth: A public option will reduce health care costs. Fact: The public option will not reduce health care costs for several reasons: there are no savings on physician office bureaucracy ($85 billion annually would be saved annually with single payer), no savings on hospitals’ billing or internal cost tracking ($90 billion annually would be saved with single payer, hospitals already use computerized uniform bill UB-82), no savings on NH/home care bureaucracy ($24 billion annually would be saved with single payer), inadequate insurance overhead reduction ($93 billion annually would be saved with single payer). In summary, studies show that even if more than 50% of patients switch to a public plan, this will only result in 1/7 of the savings that could be achieved under a national health care system ($47 billion v $363 billion annually savings). Adding a public option to the array of private insurance companies in existence will only exacerbate the waste and inefficiency inherent in a patchwork system of health care finance. In their drive to fight claims, issue denials and screen out the sick, insurance companies generate more than $350 billion in administrative paperwork waste. The proposed insurance industry regulator entity will only add another layer of needless bureaucracy to this already bloat-heavy system. Maintaining this system means that no effective cost control is possible and the system will rapidly deteriorate as costs increase. Only single payer can expand and improve coverage to everyone without spending more than we are now.

In short, the so-called “public option” will kick the can down the road, at great expense in dollars, lives, and human suffering.

A Neoliberal Project

This is the where the Underpants Ghomes come in! From the famous South Park skit:

We just covered Step 2 (“?”) above, with “Structural Problems with the So-Called “Public Option.” But it’s Step 3 (“Profit”) that’s the real issue; it’s as if the “public option” crowd treat the Underpants Gnome business plan as a requirements document; there must be Step 3 — “Profit!”, and therefore there must be a Step 2, even if they don’t quite know (“?”) what it is (which accounts for the public option’s shapeshifting character; new question marks get swapped in as old ones fail. But of course, it’s the requirement for profit that’s the problem. The intercept:

[W]at’s happening with Aetna is the consequence of a flaw built into Obamacare from the start: It permits insurance companies to make a profit on the basic healthcare package Americans are now legally required to purchase. This makes Obamacare fundamentally different from essentially all systems of universal healthcare on earth. (There is one tiny exception, the Netherlands, but of the four insurance companies that cover 90 percent of Dutch citizens, just one is for profit.) In The Healing of America, probably the best book ever written about how different countries provide universal healthcare, T.R. Reid explains that functioning systems have a huge variety of characteristics but several “standard building blocks” — and one is that “financing healthcare must be a nonprofit endeavor.” As Reid writes, other countries have made it work with many different kinds of healthcare providers — doctors can work directly for the government, as in the U.K., or not, as in most other rich countries. Hospitals can be for-profit or not. But no one has been able to create a viable system of universal healthcare based on citizens being forced to help insurance companies make a profit.

But why? Why do “public option” advocates keep pushing for a market-based solution that hasn’t worked in the past, doesn’t work now, and which nobody else has been able to make work? The most charitable explanation is that they are enraptured and captured by neoliberal mythology: “Rule #1: Because markets. Rule #2: Go die.”

Conclusion

No doubt there will be a great battle over the “public option” in the Congress to come, and perhaps even a famous victory: The Democrats may succeed in kicking the can down the road and preserving the role of for-profit health insurance companies in our health care system for another couple of election cycles. At some point, however, ObamaCare will collapse of its own weight and complexity again, and one can only hope that the combination of a loss of legitimacy for neoliberalsim and a resurgent left will be strong enough to force the adoption of the simple, rugged, and proven single payer.

NOTES

[1] The Clinton quote is taken from her campaign site, and reads: “Third, consistent with her previous proposals on “public options”, Hillary will pursue efforts to give Americans in every state in the country the choice of a public-option insurance plan, and to expand Medicare by allowing people 55 years or older to opt in while protecting the traditional Medicare program.” The “public options” and Medicare are separate.

[2] Edwards, Clinton, and Obama all had public option proposals in their campaign 2008 platforms. HH omit that Obama’s plan didn’t have a mandate, rendering it utterly dysfunctional, which so ticked off Krugman he called out Obama on it.