The logic of neoliberalism spread well beyond college and employment, of course. Retirees were told to save for their own retirement, with (or, often, without) government subsidies. Workers were left to choose their own investments and their own advisors. And savers who lost money in the stock market crash or who paid outrageous fees to unscrupulous banks—well, they should have made better choices.
The Great Recession dampened Washington’s enthusiasm for the neoliberal social contract. After the crash of 2008, it became much harder to ignore the failures of the marketplace. Big banks’ predatory and risky practices came to light, as did profiteering in the student loan market by financial institutions and for-profit colleges. No longer was it tenable to suppose that market subsidies alone would give everyone a fair shake.
But policy makers and citizens alike are struggling to find a new mode of policy making that expresses an appealing social contract for our time. This is where public options can contribute to a national conversation about what we owe each other, as well as to a wonkier discussion about policy tools. Public options express a collective commitment to freedom, to opportunity, and to markets that distribute resources fairly amid the realities of globalization, the gig economy, and modern family life.
What Is a Public Option?
Many people may have encountered the public option during debates over health care. In that context, a public option is a government-provided health insurance policy (think Medicare) that is universally available to every American. But it is also an option. If you don’t want to use Medicare for your health insurance, you don’t have to. You can buy private health insurance instead. The key is that under a public option, the provision of health care doesn’t depend on an employer (as in the Treaty of Detroit model) or on profit-seeking corporations (as under the neoliberal model). Of course, while the public option was discussed in health policy circles in the 1990s and 2000s, it was never enacted.
We can now begin to specify what distinguishes the public option from other policy approaches. A public option is a government program that provides some important good or service, like health insurance, at a controlled price. Libraries, post offices, and public schools are classic public options, and it is important that they be recognized as such. In each case, the government provides an important resource (books, mail service, and education) and makes it available to everyone, either for free or for a low price. Of course, nothing in life is really free, so taxpayers foot the bill for free and below-cost items. But the important point is that we pay nothing extra to borrow a book at the library or have our kids learn arithmetic, and we pay only a few cents to mail a letter.
A public option, then, isn’t simply any activity in which government plays a part. Instead, we mean a government program that has two essential elements:
First, the program guarantees access to important services at a controlled price.
Second, the program coexists (or could coexist) with private provision of the same service.
When we say that public options operate alongside private options, we have in mind two possibilities. One is what we call a baseline public option, which provides a universal, basic level of service. People who want more (either in quantity or quality) can pay for additional, private services, but everyone receives the baseline. In this sense, Social Security is a baseline public option, because nearly all workers participate. You can save more for retirement, if you like, but paying FICA taxes is mandatory. And although you can refuse to claim Social Security benefits, you don’t get a refund if you do.1
Some public options, though, compete on an equal footing with private services. These competitive public options offer higher quality or lower pricing, but participation is optional. So, for example, public libraries provide a competitive public option. Anyone can go to the library, check out a book, and read it at home for free. But the book might not be available right away, and you can’t keep it forever. For people who want the book faster or want to read it repeatedly over the years, there’s also a private option: purchasing the book.
Implicitly, then, baseline public options enroll everyone, with few or no exceptions. Policy analysts call this an “opt-in default,” because people are automatically included and must take affirmative steps to exit (and only some may be permitted to do so). For instance, almost all workers must pay Social Security payroll taxes, with limited exceptions for state employees and students. By contrast, competitive public options generally adopt an “opt-out” default, so people do not participate unless they choose to do so. When you go to the public library and check out a book, you’re choosing to do so.
Both competitive and baseline public options share the non-exclusivity that is a core feature of the public option. Both are public programs, run by public officials with public funding, but they aren’t the exclusive means by which citizens may gain access to a given good or service. Thus, the U.S. Postal Service is a public option (one can send mail by other means), and public schools are a public option (one can utilize private schools).
Now, it may at first seem that a baseline public option isn’t an option at all but rather a mandatory public program. What’s optional about Social Security? Answering that question requires a distinction between the benefits side and the funding side of baseline public options. First is the benefits side. A baseline public option offers everyone a base level of goods or services but is not the exclusive means of acquiring the good. Individuals may reject the public option entirely or may accept it and “top up” by buying a private supplement. Social Security is a baseline public option in just this way. Recipients can refuse to claim the pension and fund their retirement without it (as the Amish and some other groups do). More commonly, people supplement the public pension system with private pension savings and programs. By contrast, exclusive government provision (admittedly rare in the United States but not as rare in other countries) makes the government the sole provider and forecloses the private option. National defense is an example, and so are state-owned exclusive liquor stores.
Second is the funding side. A baseline public option often is funded through universal taxes that cannot be avoided. Thus, Social Security imposes payroll taxes, as does Medicare. These baseline public options employ universal taxation in order to secure stable funding and wide participation. Some competitive public options adopt the same strategy: in most places in the United States, everyone pays the taxes that fund the public schools, even if they choose to send their kids to private schools.
In Chapter 3, we offer a few words on how public options might be funded. For now, our point is that the key characteristic of the public option is that it is non-exclusive on the benefits side, even if it may be mandatory on the funding side.
These ideas raise a host of questions, both principled and practical. In the remainder of this chapter, we sketch the notions of fairness that motivate public options, and we illustrate how they extend values already embedded in American society and history. As we will show, the justifications for public options often resonate in a familiar range. We will argue that the government should act to secure important goods for its citizens and to address market failures. So our innovation does not lie in our rationale for public action in some form. Rather, our contribution is to help delineate the array of ways in which the government may act—and demonstrate when the public option may be preferable to other modes.
Freedom and Opportunity
Since the founding of the country, the government has acted to secure the preconditions of freedom for all Americans. In the earliest years, land promised opportunity, but land in the East was scarce and expensive. Without inherited wealth, ordinary workers couldn’t hope to step into the middle class. Thomas Jefferson and his successors responded by purchasing land in the West from other countries. The government also funded armies that battled Native Americans (often unjustly and viciously) to secure the land for white settlers. The government passed homestead acts, enabling farmers to get a plot of lan
d for themselves at an affordable price, and it funded and built roads, canals, railways, and other infrastructure to support development in the West. In their time, these public options were the social prerequisites for a version of freedom that entailed land ownership and self-sufficiency.
Public options also supported opportunity in twentieth-century America. Industrial work promised new opportunities but also presented new risks. Workers leaving the farm for the city could earn higher wages and enjoy the luxuries of urban life, but they left behind their social support system. Parents could no longer combine farm work with child-rearing, and so the gendered division of labor sent men into the workforce, leaving wives at home. And the prospect of aging brought new anxieties, since workers no longer had a farm—or an extended farm family—to support them if they outlived their ability to work. Social Security—one of the most successful public options—responded to these anxieties. The program guarantees that workers and their dependents can live decently despite the loss of a paycheck in the case of disability, early death, and retirement.
But our public policies have not kept pace with social change. In twenty-first-century America, the foundations of economic opportunity have shifted again. Some post-high-school training or education is increasingly a minimum credential for good jobs. Even elite workers now participate in the gig economy. Many people switch jobs to take advantage of new opportunities to earn and to gain skills. Working parents and single parents are the new norm.
One of the most important features of public options is that they increase equality, and equality of opportunity in particular. Politicians and commentators often talk about equality of opportunity as something that exists in any free society. But in the last few decades, it has been increasingly clear that there isn’t equal opportunity for everyone in America. Studies show that intergenerational economic mobility is much rarer than the American dream promises. A kid in Charlotte, North Carolina, whose family is in the lowest 20 percent of incomes in America has only a 4.4 percent chance of making it into the top 20 percent. In San Jose, California, the kid would have a 12.9 percent chance—much higher, but still not the 20 percent chance she would have in a society with perfect mobility. Areas with lower mobility tend to have more residential segregation, greater income inequality, worse primary schools, lower social capital, and more family instability.2
Equality of opportunity also can’t be achieved by simply leaving people alone. Let’s assume that Joe and Sam grow up equal in just about every way—wealth, intelligence, hard work. They each get married, have a couple of kids, and get good jobs working as IT managers. Because of a few lucky breaks, Joe’s boss leaves and he gets promoted at a young age. Sam is doing just fine, but his company gets bought out and he loses his job after the merger. Now let’s compare their kids. Joe’s kids can take unpaid internships, enroll in test-prep classes for college admissions, and participate in lots of after-school clubs and activities. Sam’s kids, in contrast, need to work to help out with the family’s finances. Is it really fair to say that Joe and Sam had equal opportunity? How do we make allowance for luck? And what about their children? Is it fair to suggest that all of them, Joe’s kids and Sam’s kids, enjoy equal opportunity? In reality, their opportunities are shaped by their context, by a variety of background conditions, and in some measure by simple luck, good and bad.
In an age of rising inequality, public options are a way to ensure that every American has access to some of the basic preconditions that are essential for having a meaningful opportunity to succeed. It’s very hard to succeed at school or work if you’ve got a bad illness. Anyone who has had the flu—let alone something far more serious—knows this. Which is why access to health care is so important. In the modern world, it is hard to interact with the economy unless you have a bank account that allows you to deposit and withdraw money. And yet 7 percent of Americans don’t. Technology has transformed society, requiring that people be able to connect to the internet to do virtually anything. But 10 percent of Americans don’t have access to high-speed connections.3 With people living longer than ever, spending your golden years in meaningful, rewarding ways—hobbies, travel, family—requires having retirement savings. But more than half of American households are at risk of running out of money in retirement.4 Of course, some kind of post-secondary education—whether training or a degree—is increasingly essential for success in the economy. But too many students are too financially strapped to get a good education and, as we’ve discussed, they often end up at for-profit schools that take their money and leave them worse off. In each of these areas, public options can provide everyone with access to the basic prerequisites for success in modern society. And because public options are universal, they apply to everyone, regardless of race, wealth, or geography.
You might wonder why we need these services to be provided by the public instead of by nonprofit community associations like churches, professional associations, or unions. After all, some policy advocates, like conservative reformer Yuval Levin, suggest that such groups are the best path forward for providing social goods and services.5 We have no objection to these organizations providing services to their members, but we do not think they can fully meet America’s needs. The big difference between community provision and public options is that the latter are public and therefore universal. Community associations work only for members of those communities, just as employer-based benefits only work for employees of those companies. At best, Levin’s community organization approach will leave us with a patchwork of opportunity. There will always be some people who aren’t members of any community, and they will fall through the cracks. Public options solve this problem; their universality means there is some measure of equality for everyone.
Public options also help get around some of the more controversial political disputes over providing basic services through private associations. Take women’s health care, for example. Some organizations—closely held corporations and churches—have objected on religious grounds to offering birth control as part of their health care coverage for employees. In the Hobby Lobby case and follow-on cases, the Supreme Court encouraged the government and these parties to find an accommodation that ensures women can get coverage without imposing on the religious convictions of these organizations.6 Public options are a way out of this tension, as they are open to anyone and do not infringe upon private associations’ religious beliefs.
The Private Sector
Perhaps surprisingly, public options can benefit the private sector. First, public options can help create a more fluid labor market. One of the central problems with an employer-based benefits system is that benefits are sticky. It is harder for people to jump from job to job because with each job transition, the worker has to go through the hassle of switching health insurance and retirement providers—or, worse yet, figure out what to do without them. Some economists call this feature “job lock” because benefits keep you locked into a job you don’t really want. Public options take away some of this stickiness, making the labor market more fluid.
Studies suggest that job lock is a real phenomenon, not just a theoretical one. A Government Accountability Office review of thirty-one studies on the link between health care and job lock between 2000 and 2010 concluded from the evidence that “workers who rely on their employer-sponsored health benefits are less likely to change jobs, leave the labor market, become self-employed, or retire when eligible, compared to those who have access to alternative sources of coverage.”7 In addition, job lock keeps married people tied to their work unless they can get health insurance from their spouse’s employer.8 One recent study used the fact that states have different standards for Medicaid eligibility to assess job lock. It turns out that in states with higher thresholds (that is, where you can earn more money and still get health care through Medicaid), there is greater job mobility. Interestingly, the study found that as Tennessee lowered its Medicaid threshold (meaning only poorer people could get its health care
services), people actually “down-transitioned,” an inelegant phrase for the phenomenon of workers taking lower-paying jobs to preserve their access to health care.9
While the magnitude of job lock is hard to calculate, it does have an impact on the economy.10 Even though some businesses might occasionally be on the losing side (after all, employees are going to leave some businesses to join others), a more fluid labor market is generally better for businesses and the business environment. More fluid labor markets make it more likely that the right workers and employers will find each other, leading to higher productivity. Young people and those who want to work part-time will more easily be able to get jobs in a fluid labor market. And during recessions, the economy will likely bounce back faster because workers can migrate to places where jobs are.
Entrepreneurs and small businesses also benefit from public options. Taking the risk to start a new business is difficult if you have to quit your job and lose your and your family’s health care or retirement benefits. In an interesting study, a group of researchers showed that when people turn sixty-five and become eligible for Medicare, there is a major jump in the number who own their own businesses. After ruling out other hypotheses, the researchers conclude that these people don’t start their own businesses before they turn sixty-five because they’re worried about access to health care. They call this “entrepreneurship lock.” Once their health care is guaranteed, these older entrepreneurs decide to start their own businesses.11
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