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Opt Me Out of Public Option Purism

Some of the usual suspects are out this morning with criticism of Tom Carper’s compromise proposal to insert a robust public option into the Democrats’ health care bill, but allow states to opt out of it by legislative or popular action. I’m not going to call these people out by name because I consider some of them friends and they’re doing good, important, productive work. But this compromise is leaps and bounds better than most of the others that have been floated, such as Chuck Schumer’s proposal to have a public insurance option that would be forced to negotiate at private market rates. Here’s why:

1) If the public option is indeed popular — and the preponderance of public polling suggests that it is — we should expect the solid majority of states to elect to retain it. Perhaps some Republican governors or legislatures would seek to override the popular will in their states — but they would do so at their own peril (and at Democrats’ gain).

2) Behavioral economics further suggests that default preferences are extremely powerful. Making the public option the default would probably lead to much greater adaptation than requiring states to “opt in”.

3) If the public option indeed reduces the costs of insurance — and most of the evidence suggests that it will — than the states that opt out of it will have a pretty compelling reason to opt back in. Say that Kansas opts out of the public option and Missouri keeps it. If a Kansan realizes that his friend across the border is buying the same quality health insurance for $300 less per month, he’s going to vote restore the public plan in a referendum or demand that his legislator does the same in Topeka.

4) Even in states that do opt out of the public option, the fact that voters could presumably elect later to restore it creates an extremely credible threat to the private insurance industry that will itself help to create price competition.

5) The ability to negotiate at Medicare or Medicare-plus-X-percent rates really is what makes the public option so powerful. It’s not just having “another option”. Although creating an additional competitor would certainly be valuable, as health insurance is a virtual monopoly or duopoly commodity in some regions, you could achieve that goal through a variety of other means such as co-ops or exchanges, some of which are already in the health care bill. Rather, it’s the ability of the government to potentially provide more efficient (i.e. cheaper) delivery of health insurance than private industry because of its advantages of scale that distinguishes the public option from something like co-ops. As a general rule, then, compromises that allow the government to take advantage of its size and negotiate at Medicare-type rates should be preferred strongly to those that would neuter it.

6) If the policy wonks are wrong about the public option reducing health care costs — I don’t think they will be, but they could be — this creates a relatively pain-free way to remove it.

Now, if you could have a Jay Rockefeller-style, Medicare-for-Anyone type public option with no strings attached, would that be a superior alternative? Of course. But that amendment was rejected 8-15 by the Finance Committee and has very little chance of becoming law. Some sort of compromise is almost certainly going to be necessary. This is almost certainly the best compromise that has been floated so far. I don’t really see what the problem is.

Nate Silver founded and was the editor in chief of FiveThirtyEight.