A more modest vision for the public plan
Jacob Hacker and Diane Archer make the argument for the public option with negotiated rates. Medicare rates would be better, they say, but the public plan can still play a host of valuable roles, some of which people don't really talk about.
One of those roles is "a cost and quality benchmark," which sounds a bit anodyne, but could prove extremely important. In the exchanges, different insurers will offer different prices for coverage. In theory, competition between the insurers should drive those prices as close to the basic cost of providing insurance as possible. But a few insurance market experts I've spoken to are skeptical that that will happen. They believe, instead, that the insurers basically know what the other insurers will charge, and everyone will inflate their prices a bit, particularly at the beginning, when no one is quite sure what the prices should be and most participants in the market will be subsidized by the government.
The public plan, in this scenario serves as an "honest pricer." Regardless of whether anyone even uses the thing, it can at least be relied on to price insurance as close to the basic cost of insurance provision as possible, as it has no incentive to pad its profits. So long as the public plan is there with an honest price, private insurers can't afford to use inflated prices, as they'll lose market share. In that way, the public plan doesn't necessarily succeed on its own terms, but it succeeds in bringing down prices across the market.
A lot of liberals hoped that the public plan would prove a dominant insurer in its own right. Given the limits on who can participate in the exchanges, and the limits on the public plan's ability to partner with Medicare for pricing leverage, it's hard to see the public plan playing that role. But it can serve as something of a corrective: If the market begins to fail, consumers have somewhere to go, and because consumers have somewhere to go, the market will have to right itself. It sounds a bit zen, but the public plan might well work by not working. If it in fact creates a competitive market, fewer people will use its services because they'll be able to get good deals elsewhere, too. And that would be a good thing.
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