Tuesday, August 04, 2009

Reflections of a Reluctant Heretic

With the battle over health care reform now being waged in town hall meetings across the country, it seems depressingly possible that there will be no action at all to change our broken system this year or any time soon. It is thus imaginable that thinking through the merits of alternative proposals will soon be seen as a waste of time, with the smart money (and lots of it) on the ability of entrenched interests to protect their turf. Let us hope that it does not turn out that way.

Stipulating that this could all become moot, it does seem at least possible that one result of the current political showdown will be a compromise in which the "public option" is dropped in favor of a package of regulatory changes designed to produce near-universal coverage. As I argued here and in a FindLaw column last week, such a result need not be viewed as yet another disappointing example of politicians' trading away the more progressive choice. Done even reasonably well, it could be that a regulated system of private insurers will be better both in the short run and in the long run than a system of private insurers competing against a public insurer.

As I noted in response to a thought-provoking comment on my post from Paul Scott, I view this as a very close call. Indeed, I confess that I would readily sign up for a public option, if it becomes available. I would do so, however, out of the hope that having relatively healthy people in the public system could make it work. While I would hope that the public insurer would do a better job of covering people than a private insurer would do, I remain unconvinced that the advantages inherent in universal public coverage (such as Medicare, single-payer, or the VA for veterans) would transfer to a public option in a mostly-private system.

The difficulty in trying to predict realistically what will happen under the two non-single-payer approaches to reform arises from having to make guesses about just how corrupted the two systems would be. If we were choosing between idealized forms -- either a well-funded and well-designed public option on the one hand or a well-designed and aggressively enforced set of regulations of private insurers on the other -- the analysis might come out differently. My analysis is based on what can only be called a cynical assessment of which type of system would work better in a watered-down, somewhat mangled form.

It is in that light that I suggested that the public option would quickly become a dumping ground that would allow the private insurers to game the system more easily and ultimately discredit the public sector as being "bloated and inefficient" -- even though any such inefficiency would be the result of the public insurer's inability (and probably unwillingness) to fight to prevent itself from having to insure the most expensive patients with the most bleak prospects. The latter fact, by the way, would perversely provide ammunition to those who would say that the government is "killing people."

Still, isn't my argument at least somewhat based on a logical move that I denied making in my blog post last week, i.e., that the public option might be good at least in the short run for real people but will prevent an ultimate move toward true single-payer health care? Although it is true that I fear the political fallout from a failed public option, I actually do fear that the public option would be worse for real people even in the short run. As Professor Colb noted in a conversation after reading my blog post last week, I am essentially predicting that the public option would not become like Medicare for the non-elderly but instead like Medicaid for the non-poor. It could well become a system that is politically vulnerable and that doctors and other providers refuse to join.

The most obvious reason for such political vulnerability is that everything done through the public option, from setting it up to determining reimbursement rates for health care providers, will end up being "government spending" and thus part of the deficit debate. As I have argued many times before (too many times to provide links), the political obsession with deficits in this country results in simply crazy political choices. Here, one can predict with a great deal of confidence that the political forces that decry budget deficits (when those deficits do not result from tax cuts for the rich or from military invasions) will make sure that the public option looks like Medicaid from the beginning.

This is why the otherwise appealing virtue of the public option, the lack of profit motive, is unlikely to work its way through to the people who choose the public insurer. Surely, there is plenty of money to be saved by not having to pay the salaries and dividends that private insurers pay, but that seems unlikely to result in the public option working better for its patients. Any saving is simply reduced spending; but there will always be still more spending that can be cut in the name of fiscal discipline.

Lest it seem that I am simply describing a parade of horribles on one side while pretending that the alternative would work without political gamesmanship, I readily admit that the private-only system of better regulation that I have reluctantly endorsed will involve a great deal of poorly drafted regulations, enforced less than perfectly. Still, when trying to predict which would be worse, the major barrier to the public option's success -- political fear of public spending -- could end up being the friend of better regulation.

To borrow a term from fiscal federalism debates, regulations are "unfunded mandates," i.e., rules that a legislature creates that it does not need to fund directly. This is the flipside of the silliness that attends deficit hysteria, because even though regulations also have social costs, those costs will be less salient in the eyes of political actors than the budget of any public insurer would be. In other words, if we cannot have an honest debate about the true costs of the public option, we can at least take advantage of that very dishonesty to improve the design and enforcement of our regulatory system. (While enforcement costs are partly public, even those can be partly shifted onto private actors and are, in any event, chump change compared to the costs of running a public insurer from soup to nuts.)

There is no doubt that private insurers would train their considerable lobbying clout on weakening regulations and enforcement, as they have always done. The result will not be pretty. Still, when trying to assess whether we can put in place a system that prevents or reduces denials of care as much as possible, my best guess is that regulations would work better in the highly compromised real world than a public option.

Again, reasonable people of good faith can differ, and the ultimate conclusion depends on where one thinks that cynical manipulations will have their worst effects. As much as I believe in the inherent ability of a public, non-profit option to work if allowed to do so, it seems all too likely that the creation of a public option would become an exercise in sabotage. Regulation is never perfect, but it might be our best choice in the current environment.

-- Posted by Neil H. Buchanan