A Public Option Saves Money

Yesterday I detailed the fundamental contradiction of the Blue Dogs' complaints against health care reform. They want to find savings within the health care system because of concerns about cost, but simultaneously don't want to implement programs that would actually reduce costs. Now we have specific numbers that make this contradiction clear, as the Congressional Budget Office has scored the specific savings that would arise from a public health insurance option to compete with private insurers.

According to a pair of Capitol Hill sources, preliminary estimates from the Congressional Budget Office suggest that a strong public option--the kind that the House of Representatives is putting in its reform bill--should net somewhere in the neighborhood of $150 billion in savings over ten years.

The sources cautioned that these were only the preliminary estimates, based on previous discussions--that CBO had not yet issued final scoring on language in the actual bill. But the sources felt the final estimate would likely be close.

Exactly how the plan produces those savings is, obviously, a key question. The reason--well, a reason--centrists and conservatives don't like a public plan is that they fear it will use the government's bargaining leverage to force doctors, hospitals, and drugmakers to accept unfairly low reimbursements. Private insurance would go out of business, since they couldn't compete; meanwhile, providers and producers of medical care would struggle to stay afloat.

Advocates of a public plan (myself included) think those fears are overblown--and that there are ways to make sure a public plan doesn't have that effect. But if the CBO is scoring significant savings, then chances are the House version gives the public plan the kinds of power conservatives and centrists fear.

Ezra points out that this number could rise or fall depending on the structure of the public option itself. It seems fairly obvious to me that, the more available the public option is, and the larger it is inside the health insurance exchange where it will live, the more savings you can wring from it. Ezra also says the right thing about its impact:

If the $150 billion estimate is accurate, however, it's interesting proof of another point: the public insurance option is not the End of Days for private health insurers nor eternal salvation for consumers. Saving $150 billion over 10 years is saving $15 billion a year. On Wednesday, the hospitals voluntarily agreed to provide $155 billion in savings from reduced Medicare reimbursements. No one thought that a particularly big deal. It was probably a good thing, but it wasn't proof of final success or ultimate failure for health-care reform.

So too with the public plan. Conservatives saying that a policy that will save $15 billion a year will end American health care -- or, as Rep. Paul Broun would have it, "kill people" -- have jumped off the deep end. Liberals who have invested all their hopes in the public plan might also be a bit disappointed. The CBO score seems to imply the likeliest of all possible outcomes: The addition of a public insurance option is a good, but modest, change to the health-care system.

But a public option is a tent pole. It's a modest change that, at its best, would reverse some of the incentives from insurers on the individual market. And if successful, like any disruptive business model, it would lead to more fundamental changes in the market.

More to the point, changing the notion of the public option as a cost-cutting tool can knock down the attacks from fiscal conservatives, and also apply to other cost-cutting measures like comparative effectiveness research and bargaining down drug prices. The way to successfully pitch a health care overhaul is to emphasize the areas of cost control - particularly those that will cut INDIVIDUAL costs, not necessarily costs to the federal budget. "Why doesn't such-and-such Congressman want you to get cheaper drugs? Why doesn't he want your premiums to go down?"

When the President returns to the States and starts hitting the road to sell the plan, he needs to talk about cost, cost, cost.