The Public Option

by Ganesh Sitaraman

  On the cost side, the employer-based system heaps additional burdens on the economy. The tax subsidy for employer-provided health insurance cost $180 billion in federal revenue in 2017 alone.8 And the hodgepodge of private coverage has fostered a huge private insurance industry that increasingly regulates health care by setting the terms of payment. These days it might not be your doctor who decides whether you can have surgery: it could be your insurance company. And the rules differ from provider to provider and state to state. But in the early days of the employer system, no one knew how entrenched it would grow—or how severely it would constrain future health care reform efforts.9

  In the 1960s, Americans once again came together to expand access to health care. The first effort was Eldercare, a program that covered hospital insurance for poor elderly people. Eldercare was a hybrid state-federal program, with federal grants going to the states and administered by the states.10 In 1965, Congress passed landmark legislation creating Medicare and Medicaid. The reform established what is known as the “three-layered cake” of public health insurance programs. First was Medicare Part A, a hospital insurance program that was largely supported by President Johnson and the Democrats. Second was Medicare Part B, a program to cover physician visits that was promoted by the American Medical Association (the doctors’ industry group) and Republicans. And finally there was Medicaid, an expanded form of Eldercare, which covered a variety of poor Americans—children, the disabled, pregnant women, and mothers of young children.11

  Fast-forward to the 1990s. By the time President Bill Clinton proposed comprehensive health care reform in 1993, the government’s health care efforts had grown more and more complex, with special programs serving special constituencies. Workers whose employers offered health insurance got tax subsidies. The elderly got Medicare; servicemembers got veterans’ health and Tricare; and Native Americans had the Indian Health Service. Medicaid itself had grown more and more intricate, with state-by-state rules disbursing federal and state funds to benefit some (but not all) poor children, elderly people, and people with disabilities.

  President Clinton’s efforts at comprehensive reform failed, but he and his successor managed to enact programs that, once again, both helped some people and added to the jumble of programs. In 1997, the Clinton administration succeeded in enacting the State Children’s Health Insurance Program (S-CHIP), which provides federal funding to states to cover uninsured children whose families don’t qualify for Medicaid.12 A few years later, President George W. Bush pushed for (and won) the Medicare Modernization Act, which made two changes to Medicare. One authorized Medicare Advantage, plans under Medicare Part C that provide additional coverage like gym memberships, and the other created Medicare Part D, a prescription drug benefit.

  By 2009, when President Obama took office with the hope of accomplishing comprehensive health care reform, the American health care system—and its politics—had grown nearly impenetrable. Each program has its own political constituencies—patients, doctors, hospitals, insurers, employers, unions—for whom “reform” could mean a threat to their health care and their livelihood.

  So America’s health care jumble means headaches for citizens and politicians alike. Reform, whether incremental or comprehensive, poses a Rubik’s Cube–type challenge. As former Obama advisor and noted oncologist Dr. Ezekiel Emanuel observed, “This complexity means there is no ‘ideal’ system and no final reform.”13

  Obamacare and the Rise and Fall of the Public Option in Health Care

  “This is a big f*cking deal.” Vice President Joe Biden’s private comment to President Obama was picked up by a live microphone at the signing ceremony for the Affordable Care Act in 2010. And he was right, if a bit blunt in his phrasing. The ACA (or Obamacare, as it came to be known) was the most significant reform to American health care since the creation of Medicare and Medicaid in 1965.

  In the lead-up to the 2008 presidential election, many progressives had come to believe that the complexity of the American health care system would defy major structural reform. With that caution in mind, they shelved the idea of a single-payer system of national health insurance—even though that system would be the simplest and cleanest approach as a matter of policy design. Instead, they turned to “universal coverage through minimally invasive reform.”14 The conservative approach would build on Medicare and Medicaid, preserve employer-based health care, and rely on markets instead of government. Ironically, the progressive plan closely resembled one that had initially been designed by the conservative Heritage Foundation and implemented by Republican governor Mitt Romney. Health care reformers in 2008 also hoped to placate the major interest groups enough to fend off the hostilities that killed reform in 1993.

  As finally enacted, the Affordable Care Act has three major components, all intended to expand access to health care. The first is an individual mandate to purchase health insurance. This was a critical reform because, as any economist could tell you, without a mandate to purchase health insurance, the system would collapse under the weight of adverse selection. The dynamic that worried the economists is pretty intuitive: health care, like any insurance, works only if higher-risk and lower-risk people are all in the risk pool together. If only sick people buy health insurance, while healthy people stay out of the system, the cost of insurance goes up, because sicker people are more expensive to cover. When prices rise, then more people drop coverage, leaving only really, really sick people in the pool. And prices go up again.

  The individual mandate aimed to dampen adverse selection by ensuring that healthy people would buy insurance. And that doesn’t just benefit sick people. After all, it’s a fact of life that today’s healthy young people are tomorrow’s older, sicker people. If everyone has health insurance, then even healthy people can get the preventive health care that can keep them healthy and reduce the cost to the health care system down the road.

  The second component of Obamacare aimed to ensure that all these people could buy health insurance with some minimum standards at a reasonable price. But, instead of a public option, the ACA went for a complex system of market subsidies. Many workers could still get health insurance at work, but everyone else would buy their insurance from private companies in a private market called “the exchange.” In a compromise to win over conservatives, the Affordable Care Act didn’t create a single national exchange. Instead, it authorized the states to set up their own exchanges. And in an attempt to make insurance affordable to all, the new system offered subsidies to low-income insurance buyers.

  The third component was the expansion of Medicaid. Medicaid would now cover anyone who was poor (not just the limited categories of the poor that it covered before), and the ACA expanded coverage to those with incomes at or below 138 percent of the federal poverty level. To sweeten the deal, the federal government set out to pay 90 percent of the costs of this expansion (remember, Medicaid is a hybrid federal-state program). Together, these changes would have massively expanded access to health care for millions of Americans.

  So, to recap, Obamacare took a market-based, private-insurance approach to comprehensive reform. But here’s the thing: it wasn’t the only path forward in 2010. At one stage, there was a real chance that a public option for health insurance—a public health insurance plan available on the exchanges as an alternative to private insurance—could be part of the Affordable Care Act.

  A public option in health care first emerged as a serious idea around the time of the Clinton health care reform in the early 1990s, but it wasn’t until 2001–2002 that it took root. In California, reformers proposed that the state offer people a public health insurance plan that would compensate health care providers at the same rate as Medicare.15 Around the same time, Yale professor Jacob Hacker proposed a federal expansion of Medicare to include more people, another version of a public option.16

  In the run-up to the presidential campaign of 2008, Hacker proposed a comprehensive new solution for American health care that he
called Health Care for America (HCFA). In our terms, HCFA was a national, competitive public option for health insurance. Under Hacker’s plan, HCFA would offer a public insurance plan modeled on Medicare and available to anyone who lacked insurance via Medicare or an employer plan.17

  Following on Hacker’s move, the public option, in different forms, found traction in national politics. A few weeks later, Senator John Edwards (D-NC), one of the Democratic candidates for president, released a health care plan modeled on the California system. Each state would offer a competitive public option through an exchange that also had private plans available on it.18 Edwards’s plan looked more like what the Affordable Care Act would ultimately be, as it was built around state exchanges, but crucially, it had a public option as part of the solution. Over the next year, liberal activist Roger Hickey and the Campaign for America’s Future began trying to persuade the grassroots movement for single-payer health care that a public option would be a more politically palatable way to get to universal coverage.19

  As 2008 turned into 2009, the public option gained serious momentum. Three committees in the House of Representatives passed a public option. The full House of Representatives passed a public option. The Senate Health, Education, Labor, and Pensions Committee passed a public option.20 The public option looked like a real possibility. So what happened?

  Politics happened. The White House held back on pushing aggressively for a public option. And, at the same time, Senator Joe Lieberman, the former Democratic vice presidential candidate turned independent, threatened to filibuster any bill that had a public option. With razor-thin voting margins in Congress, Lieberman’s defection would kill the bill.21 Adding to the pressure, Republicans and interest groups opposed the public option, knocking it out of the circle of acceptable compromises.

  Democrats ultimately abandoned the public option in order to keep their side intact and soften Republican opposition to health care reform. The irony is that these compromises weakened reform without doing much to gain Republican backing. As the most notable historian of American health care reform has observed, “None of the compromises made by Democrats softened Republican opposition in the slightest.”22

  The Ironies of Opposition

  Republican opposition to the 2010 Affordable Care Act was swift, unrelenting, and uncompromising. On every possible front, they challenged the health care law. During the Obama administration, Republicans in the House of Representatives voted more than 60 times to repeal the law.23 Republican governors refused to create state exchanges. Conservative groups challenged the law in court on multiple grounds. The irony is that every effort to weaken, block, or repeal the Affordable Care Act only makes it more likely that health care advocates will push harder for a public option—and that a public option will make even more sense than it did before.

  The Supreme Court took one of the first steps toward undermining Obamacare in its 2012 decision in National Federation of Independent Businesses v. Sebelius. The NFIB argued that the Affordable Care Act was an unconstitutional exercise of congressional power: Congress couldn’t require consumers to buy health insurance, and it couldn’t cut funding to states that refused to expand their Medicaid programs.

  The challenge to the individual mandate was breathtakingly radical. The core problem in the economics of health insurance is the adverse selection problem we discussed earlier in this chapter. Insurance, whether for health care or car accidents or floods, works only if there is a large and diverse pool of people who are covered and paying into the system. If people can wait to buy health insurance until they’re sick, the whole idea of insurance goes down the drain: it’s as if people could wait to buy car insurance until after they’ve had a car accident.

  So the NFIB’s first argument—that the Court should strike down the individual mandate—would have made the health care market in America work far less well by stripping the mandate from the system. Ultimately, the Court held that the Affordable Care Act’s mandate was constitutional because, as a technical matter, it exercised Congress’s broad power to tax.

  But even as the Supreme Court accepted one of the three pillars of Obamacare, it knocked down another. The Supreme Court agreed with the NFIB’s claim that tying federal funds to the Medicaid expansion was unconstitutional. With that decision, the Court emboldened Republican governors to deny Medicaid coverage to tens of millions of poor people. And they did.

  Many of these states had large populations of poor and working-class people who would have benefited from the Medicaid expansion. As a by-product, the states would have seen economic benefits from a healthier workforce. But Republicans declined to voluntarily expand Medicaid even when the federal government paid 90 percent of the cost. For progressive health care advocates, the fierce opposition suggested that a national public program—more like Medicare than like Medicaid—would be a better way to guarantee that all Americans have access to health care.

  At the same time, many Republican governors across the country refused to create health insurance exchanges. The cynicism and irony of this position cannot be underestimated. The purpose of having state exchanges instead of a single federal exchange was to support a conservative desire for federalism and less national government power in health care. By refusing to set up the exchanges, Republican governors guaranteed instead that the federal government would set up the exchanges in their state. The principle of local control collapsed under ideological opposition to expanding access to health insurance.

  When the federal government stepped in to create these exchanges, conservatives challenged that effort in court, too. In King v. Burwell, they deployed clever lawyering to claim that the Affordable Care Act didn’t allow for the federally created exchanges to offer subsidies to working-class Americans. This challenge, too, would have destroyed the Affordable Care Act because the individual mandate won’t work unless there are subsidies for those who can’t afford to pay for coverage. This time the Supreme Court rejected this attempt to undermine the ACA.

  Not satisfied with attacking the individual mandate and the Medicaid expansion, conservative groups also attacked the scope of health care coverage under the ACA. In Burwell v. Hobby Lobby Stores and Little Sisters of the Poor v. Burwell, groups challenged the legal requirement that private health insurance plans offer some minimum benefits, one of which was contraceptive health care for women. (To be clear, this wasn’t coverage of abortion, which Democrats negotiated away in order to pass the bill; this was coverage for birth control.) Hobby Lobby argued that offering its workers a health care plan that paid for birth control was an affront to the corporation’s religious beliefs. The Supreme Court agreed, and the federal government offered an accommodation, worked out with health insurers, that enabled women to gain access to birth control separately from their employer-funded plan. In Little Sisters of the Poor, the religious order argued that filling out a form telling the federal government that they didn’t want to offer birth control coverage to employees (the deal worked out after Hobby Lobby) was itself an affront to their religion because even filling out a form made them complicit in non-childbearing sexual relationships. The Supreme Court punted on that case, asking the parties to go back and figure out a solution.

  Most recently, the Trump administration has weighed in on the Republican side of things. With Congress unable to repeal Obamacare, the president first declared his intention not to enforce the individual mandate and to undermine the ACA’s subsidies for insurance companies. Amid the bickering and uncertainty, a number of private companies have either raised health care premiums or exited the exchanges altogether. Finally, in their 2017 tax bill, Republicans pushed through a repeal of the tax penalty for those who don’t have health care (the so-called individual mandate).

  Conservatives haven’t stood alone in their opposition to the Affordable Care Act. In August 2009, some of the nation’s largest private insurance companies, including Aetna, Cigna, Humana, UHC, and WellPoint, gave $86.2 million to the Chamber of Co
mmerce, funneled through a group called America’s Health Insurance Plans (AHIP), so that the chamber would oppose Obamacare.24 This political money-laundering allowed them to cover their tracks so that they weren’t directly seen as opposing the bill.

  All this legal and political wrangling, we think, only strengthens the case for national power in general—and a public option in particular. If the federal government runs exchanges across the country, it only makes sense to consolidate them. That would reduce costs for both the federal government and consumers, because the pool of insured consumers would be larger. If the states won’t expand Medicaid despite generous subsidies, then it will take a federal program to cover the poor and near-poor people whom the expansion was intended to benefit. Pushing the point further, if the high cost of subsidies is a stumbling block, perhaps it would be cheaper and easier to have a public option that could enroll anyone who wants it, regardless of income level. A public option would also sidestep the religious objections by parties like Hobby Lobby and Little Sisters of the Poor. If private employers, like corporations and churches, simply can’t bear to offer access to essential health care, then the better solution is a public system that offers birth control coverage. Indeed, if we take Hobby Lobby’s and the Little Sisters’ concerns seriously, then the federal government would have to create a public option for birth control alone. Opposition now requires a public option.