Jacob Hacker is a professor of political science at Yale, but he's also more well known at the moment as being the guy who thought up the public option. Before the House HCR debate, he wrote this article with Diane Archer, director of Health Care Project at the Institute for America's Future at TNR's "Treatment" blog about why the not so robust public option in the House bill is "worth it." And why the Senate Finance Committee bill is not.
The CBO’s declining estimates of savings certainly make a strong case for having the public plan use modified Medicare rates, as we have long argued. It’s a shame the House will not be considering a bill that shows how substantially a public plan can contribute to freeing up federal dollars to help Americans afford coverage. But we should keep in mind that the prime argument for the public plan has never been about a particular payment formula. It has been that a public insurance plan is vital as an institutional check on private plans, its role evolving to reflect the emerging weaknesses (or strengths) of regulated private competition. Put simply, health reform is much more likely to succeed with a public health insurance option, even one with negotiated rates, than if private insurers are left to run the show....
If the public plan is able to obtain more favorable rates, it will not only lower its premiums and increase its membership. It will also, through competition, bring down private plan rates. Private insurers overpay preferred providers at least in part because it’s a way for the insurers to keep competitors out of the market. But if a public plan is now in the mix, the game changes, and insurers may finally feel pressure to drive greater efficiencies.
The same uncertainties surround the CBO’s prediction that the public plan will attract just one in five Americans within the health insurance exchange because of its higher projected premiums (down from earlier estimates of one in three)....Healthy people might choose the public plan because they will have the security of knowing that if they get sick or injured and need costly care, their plan will not be conjuring up ways to deny them needed coverage. (To be sure, if the private plans were required to be transparent about the services they covered and the rates they paid, it might be a different story. But the current congressional bills do little to require they disclose this data to enrollees.) And, of course, the more healthy people join the public plan, the more bargaining power the public plan will have and the more public plan rates will come down.
The public plan is also critical to reform as a cost and quality benchmark, one that is particularly crucial if private premiums accelerate upwards. The insurance industry has threatened that premiums will skyrocket if an individual mandate is not tough enough. It may be an idle threat, but if a final reform bill ends up looking more like the Senate Finance bill than the House bill, it might not be. In most local markets, competition is likely to be anemic, and regulation of insurers inadequate. There will be little to prevent insurers from raising rates as they have threatened.
In short, it’s no time to be despondent about the fate of the public insurance option. For sure, pegging rates to Medicare and obligating Medicare providers to accept these rates would be far preferable, and a public plan with negotiated rates may do less to keep the insurers honest and drive down costs. But it’s still immensely valuable to give Americans an out--another choice--to let the insurers feel the heat of not being the only game in town. The fierce and continuing opposition of the insurance industry suggests that they think that a public option will prove a serious counterweight in an increasingly consolidated private market. The overwrought pessimism of the pundit class should not aid them in their cause of protecting themselves from a public-spirited competitor.
Those are just some of the highlights of Hacker's and Archer's argument, and it's really worth the read. The public option is central to reform, with none of the bills thus far produced having any other really solid mechanism to force insurers to hold down costs.
Enough Democratic Senators realize this to easily form the majority of their caucus. The question becomes whether political expediency, and the overwhelming desire to pass anything and call it reform will win the day.