Is the Public Option Fight Worth It? Yes.

An AP article greeted readers all across the country this weekend, causing no amount of consternation in the progressive community, and no doubt bringing glee to the Right and the insurance industry. The basic storyline AP is pushing, the public option isn't worth the fight.

After all the noise over Democrats' push for a government insurance plan to compete with private carriers, coverage numbers are finally in: Two percent.

That's the estimated share of Americans younger than 65 who'd sign up for the public option plan under the health care bill that Speaker Nancy Pelosi, D-Calif., is steering toward House approval

If you have any doubt that the AP is pushing an agenda in this article, look no further than the concluding paragraph:

If Congress passes a public plan that's not much of a sensation, Democrats might have reason to regret all the time and energy they invested in it.

The question of course becomes, if it's so insignificant and Dems are wasting their time trying to keep it, why is the right and the insurance industry so dedicated to killing it? Here's the key, one-word quote in the article.

Insurers aren't buying the budget office analysis. Asked if it might soften that opposition, industry spokesman Robert Zirkelbach of America's Health Insurance Plans responded with a curt "No.

Of larger policy concerns regarding the public option provisions in the current bills is how the Blue Dogs managed to curtail the benefits and increase the costs of the public option by insisting on negotiated rates. Last week a new CBO analysis concluded that the public option enrollees will be paying higher premiums than those enrolled in private plans.

[A] plan paying negotiated rates would attract a broad network of providers but would typically have premiums that are somewhat higher than the average premiums for the private plans in the exchanges....

The rates the public plan pays to providers would, on average, probably be comparable to the rates paid by private insurers participating in the exchanges. The public plan would have lower administrative costs than those private plans but would probably engage in less management of utilization by its enrollees and attract a less healthy pool of enrollees. (The effects of that "adverse selection" on the public plan's premiums would be only partially offset by the "risk adjustment" procedures that would apply to all plans operating in the exchanges.)

One of the primary problems here, as Brian Beutler points out in his article, is that private insurers will still be likely to game the system and cherry-pick, and because the public option will take all comers, it will have a more expensive pool of consumers.

"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.

Overall, the impact of both phenomena is that, on average, sicker people will be drawn to (or nudged toward) the public plan, and, to be actuarially sound, it will have to raise its premiums.

The House bill does quite a bit to correct for these effects--it mandates that plans offer a minimum benefits package, and sets up a system of "risk adjustment", to force insurers that cover relatively healthy people to help offset the cost of covering sick people. But, as CBO's findings indicate, these provisions will probably not be enough.

This was the basis of the argument for tying the public option's payment rates to Medicare's. Not only would the public option save money on administrative costs, it would save yet more money by paying less to providers.

"The idea has always been that if the public option were able to save on administrative costs and provider rates, that it would be able to provide more competition," Park says.

All things being equal, the public option would not be more expensive, adjusted for adverse selection. Administrative costs will be much lower than in private plans. It's also important to remember that public option enrollees will be getting much more for every premium dollar than enrollees in private plans. There are potential immediate fixes for these problems: the Progressive's Medicare plus 5 percent rate scheme and Sen. Wyden's efforts to open the exchange, and the public option, to a larger group of potential enrollees. Those fixes would make this reform more meaningful.

Without them, is it still worthwhile to keep fighting for the public option, watered down as it is? I'd say yes, particularly the House bill. As it stands, it will provide coverage to millions who aren't getting it now. That's a worthy undertaking, even though it might not be what it could have been. Additionally, the House bill includes a provision to expand the exchange, and access to the public option over time, which would increase the pool of healthier people in it, bringing down costs for all participants.

Without the public option, even constrained as it is, this bill would only be insurance reform, and half-assed insurance reform at that, given it doesn't provide strict cost controls. With it, and this is why the insurance companies hate it so much and are hell bent on killing it, there's nothing to truly keep the insurers in line. The regulatory reforms are important, but they'll only be as effective as the government's intent and ability to enforce them. Insurers, as Mr. Park says, "have years of experience gaming rules."

Incremental reform is frustrating, but it's what we're going to get. Even with some sort of public option included, passage of this bill does not mean the end of the fight for universal coverage. This fight won't be over this year (particularly if they force us with individual mandates to buy crappy, expensive insurance and provide no alternative). While President Obama and Congressional leaders will love slapping a big red bow on whatever they pass and saying the "reform is done," we'll have to continue to fight to expand access to the exchange, improve the strength of the public option, and increase pressure on private insurers. Right now, this bill is literally the only game in town to get us on the path.