The "Public Option": Obamacare's Last Stand

(A version of this article was published by RealClearHealth.)

Most Americans disapprove of Obamacare. In a poll conducted in July by the Kaiser Family Foundation, which supports the goals of Obamacare, 46 percent of respondents disapproved of the law while only 40 percent approved. The first poll was conducted in April 2010, when Obamacare was fresh off the press. Then, 46 percent of the public favored the new law, while 40 percent opposed. In July 2010, half of respondents voiced support for the law. In the mind of the American public, that was Obamacare’s high-water mark. It has been downhill since then.

Nevertheless, Obamacare’s proponents insist it is going quite well. In a remarkable development, JAMA, the Journal of the American Medical Association, a peer-reviewed scholarly journal of the medical profession, published an advocacy piece by President Obama himself in its august pages. Obama reluctantly acknowledges price competition and choice in Obamacare exchanges might not have worked out quite as well as advertised. His proposed solution would be a so-called “public option” in regions where few health insurers compete.

Hillary Clinton, the Democrats’ presumptive presidential nominee, has also recently endorsed a public option. The public option is a throwback to Democratic health reform proposals before Obamacare. During the campaign for the Democratic presidential nomination in 2008, it was Senator Obama who proposed a public option and Senator Clinton who dismissed it as unworkable.
When it came time to legislate health reform in the wake of the Democratic wave election of 2008, Obama’s public option did not make it into the law.

Keep this in mind: When they had the run of the table in the nation’s capital, controlling both houses of Congress and the White House, Democrats agreed the public option was unworkable. Now that Obamacare has creaked along for six years, both the President who signed the law and the woman he endorses to succeed him insist it is just the thing to fix Obamacare’s most obvious problem: Insurers dropping out of the health insurance exchanges, unable to profit even after increasing premiums by double digits every year.

Recall what most Americans believe to be the most offensive characteristic of Obamacare: It compels individuals, as a condition of residing in the United States, to buy health insurance. Health insurers are the only industry which has this privilege. Nevertheless, they have not been able to profit in Obamacare exchanges for two reasons. First, exchanges have attracted older and sicker beneficiaries than had been expected. So, costs were much higher than insurers had anticipated. Second, the Administration believed it could protect insurers from losses by manipulating certain elements of the Affordable Care Act to pay money to insurers without Congressional appropriations.

This turned out not to be the case. By the time Obamacare’s exchanges started operating in 2014, Republicans controlled Congress and forced the Administration to stop paying these monies to insurers. Even today, Congressional Republicans are discovering ways in which the Administration is paying money to insurers without appropriations, and plugging those holes.

The public option would address this by offering a plan that looks like Medicare: Insurers would administer it but taxpayers would bear all the financial risks. If legislated, I anticipate it would accelerate insurers’ exits from Obamacare’s exchanges. It is unlikely exchanges will ever become profitable, like Medicare Advantage or Medicaid managed care are. Those programs have bipartisan political support, while Republican politicians are fully committed to opposing Obamacare’s exchanges.

A public option, however, administered by the same contractors (which are subsidiaries of health insurers) which process Medicare claims, would be a good business opportunity for insurers. So, they should be quite happy to allow Obamacare beneficiaries to be shifted from risk-bearing plans to a government plan.

Who bears the risk? Taxpayers and their children, of course! The political charm of a public option is that it can be funded by federal debt at historically low interest rates. Like Medicare’s Hospital “trust fund,” which is on track for bankruptcy in 2028, any public option’s future costs will be far greater than our ability to pay for them. However, both Mr. Obama and Mrs. Clinton will have departed the scene by then. Expect the “public option” to become the centerpiece of Democrats’ post-Obamacare health reform agenda in this election.