The Public Option
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Furthermore, a public option would resolve a structural problem that is built into the Affordable Care Act. Because the ACA relies on competition among private companies, it is vulnerable to market forces that erode competition. And, as if on cue, the market in health insurance has become more and more consolidated—which is to say less and less competitive. In 2006, the four biggest health insurance companies covered 74 percent of the national market. In 2014, they covered 83 percent.25
The problem of consolidation is compounded by big insurers exiting the ACA marketplace. The best example of this is Aetna. Aetna abandoned eleven of fifteen exchanges, citing the Obama administration’s blocking of its merger with Humana as part of the reason.26 Aetna, of course, wants the greater efficiency and lower costs that come with scale. But with consolidation, there’s less competition—and with less competition, fewer choices for those buying health care on the exchanges and higher prices (because monopolies know they can raise prices). As Jacob Hacker has observed: “In a lot of the country, we’re getting single-payer health care—it’s just a private insurer that’s doing the paying.”27
In these dysfunctional markets, a public option has much to offer. As Hacker has argued, the creation of a public option would give consumers on the exchanges more choice, would ensure there is competition on every exchange with a private option, and would serve as a benchmark to compare costs and prices.28
To be fair, public utilities regulation offers an alternative approach. Law professor Nicholas Bagley, for instance, has argued that medicine is a public calling, a service that is akin to many others that have traditionally been understood as something states can regulate to ensure that there is universal access at a controlled price. This kind of regulation, often called common-carrier regulation or public utilities regulation, is particularly useful for essential goods and services and where the market is effectively a monopoly. Electricity is a classic example: it is necessary for modern life, and its provision is a monopoly. As a result, government regulates electric companies to ensure universal access and affordable rates. Bagley suggests the same is true for health care.29
In light of massive consolidation, it might be that a public utility model of regulation—in addition to or in lieu of a public options model—is necessary. Indeed, if Hacker is right that we already have a single-payer system, just paid by a private insurer, then public-utility-style regulation will be necessary because monopolies don’t face competitive pressures to keep costs down.
The ironies here are abundant. The Republican opposition to the Affordable Care Act was and is opposition to a conservative, market-based approach to health care. The Affordable Care Act isn’t a government takeover. There’s no single-payer system. There’s no public option. In fact, it isn’t even implemented as a national program—it operates through state exchanges and through state-based Medicaid. This is about as conservative a program as one could design (which is why the Heritage Foundation designed it and Mitt Romney adopted it in Massachusetts).
And this is why Republicans had so much trouble repealing and replacing Obamacare under the Trump administration. Even with control of both houses of Congress and the presidency, they couldn’t find a health care plan that guarantees expansive coverage without involving the government more heavily. That’s because Obamacare was not a radical approach to accomplishing the expansion of health care. By opposing even a conservative, market-based, state-based system of health care, Republicans boxed themselves into a corner.
Some Options for a Public Option
At this stage, the case for a public option in health care is stronger than ever. A public option would guarantee access to health care to everyone at a controlled (and affordable) price; it would serve as a benchmark and competitor to private options without crowding them out; and it would expand people’s freedom by decoupling the need for health care from their current employer.
Political battles since Obamacare’s passage in 2010 have only strengthened the case for a public option. Republicans have mounted unceasing attacks on the Affordable Care Act, even in the face of compromises that made the program more complicated and less efficient in order to win conservative support. So there is little reason for progressives to embrace those complexities now. If conservatives will oppose everything no matter what, then there is no reason not to design a better system. They’ll oppose that, too, but at least it’ll work better.
And the ACA’s dicey experience with market subsidies adds further weight to the case for a public option. The exchanges have been difficult to design, and they haven’t fostered robust competition or kept prices down. The cost of subsidies to the federal government is high, and yet many poorer people lack access to affordable coverage, thanks to the Republican states’ refusal to expand Medicaid.
A well-designed public option would guarantee access to health insurance to every American. It would ensure that every American has a choice in health care providers, and it would foster competition despite industry consolidation. Indeed, even President Obama, who didn’t push hard for a public option during the fight for the Affordable Care Act, has come around to thinking that it would be a good addition now. As he wrote in the Journal of the American Medical Association in 2016, “Based on experience with the ACA, I think Congress should revisit a public plan to compete alongside private insurers in areas of the country where competition is limited.”30
So how might a public option work today? To begin, recall our distinction between baseline public options and competitive public options. Recall that a baseline public option sets a floor—it provides a minimum service for everyone. Further private options exist on top of it. A competitive public option is a program that operates alongside a private option and competes with it. Both kinds of public options are part of the debate, and each has different pros and cons.
The baseline public option is what many people call, misleadingly, “single-payer.” (It’s misleading because a baseline public option isn’t the only game in town. Private companies could offer supplemental coverage, as they now offer Medigap policies to Medicare participants.) A baseline public option (perhaps an expanded form of Medicare) would cover everyone, but with minimum levels of coverage. Private options could exist on top of that for people who wanted to pay for (or for employers who wanted to offer) greater benefits than the baseline public option. This model wouldn’t be a “pure” single-payer system, but that’s precisely why we like it. Put another way, it wouldn’t be a form of socialism with the exclusive government provision of health care.
America already has a baseline public option for people age sixty-five and over: it’s called Medicare. Private companies can—and do—compete to offer additional coverage (Medigap policies). This kind of baseline public option is fairly common internationally. The United Kingdom’s National Health Service, for instance, allows for private health care provision and insurance on top of the public program.
While the baseline public option is the simplest design for a health care system, it is also demanding administratively and politically, precisely because it would be a big change from the status quo. Today, half of all people who have health care in America get it from a private insurer through their employer.31 Moving those people from their current insurance to a public system like Medicare would trigger political pushback and practical challenges in implementation. One smaller step forward in the short to medium term would be for advocates of a single-payer system to experiment within the states, in order to see if there is a workable way to make this transition.
The second approach, a competitive public option, is what most people think of when they think about a public option in health care: a public health insurance program that anyone could join if they wanted. The competitive public option could operate within each state, as a public plan that sells insurance through the state exchange. Either the states or the federal government would create and operate this public option. The state version would thus be akin to the California plan th
at was proposed in 2001–2002 or the Edwards plan from 2007. Alternatively, the competitive public option could be a national plan, created by the federal government and operating in all of the exchanges. The upside to this system is that the national public option would have further benefits of nationwide pooling and a far larger scale.
The most difficult policy challenge in designing a competitive public option lies in the details of managing costs and payments. During the debate over Obamacare, Democrats in the House of Representatives took two different approaches to a public option. Conservative Democrats, who ultimately won the day, argued for a public option in which the government would negotiate prices with providers. In theory, this would help reduce costs (because the government has purchasing power). But the Congressional Budget Office estimated at the time that premiums might actually be higher than premiums from private insurers.32 Other Democrats advocated for a “robust” public option, in which the public insurer would pay providers at the same rates that Medicare pays. The Congressional Budget Office found that this approach would reduce premiums by 7–8 percent because Medicare simply sets rates for insurers to pay.33 The problem, however, is that tying payments to Medicare rates (or even Medicare rates plus, say, 5 percent) means that hospitals and providers make less money because of Medicare’s lower reimbursement rates.34 This certainly creates a political problem, and we don’t know if it will create a financial problem for hospitals and providers because we don’t know whether they will make up lower prices with higher volume. This problem, however, is not insurmountable. One could imagine designing a transition period, in which the public plan pays Medicare rates plus 10 percent for the first year (for instance) and then reduces the payment each year after that. This would enable us to see how the new system works and to help providers adapt to the lower rates incrementally.
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As President Trump discovered after his first, quick attempt to repeal the Affordable Care Act, “Nobody knew health care could be so complicated.”35 Health care in America is complicated, and reform will be challenging. But a public option would be a big step in the right direction—a way to ensure that every American has access to health care at an affordable price.
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And More
We hope we’ve persuaded you that the public option has already contributed a great deal to American society and holds the promise to contribute much more. Looking to the future, we’ve identified a few more opportunities for public options, some concrete and some more speculative. We consider all of them worth a serious look.
Broadband Access
Today, broadband internet access is critical for communities. It’s the equivalent of access to the mail in the nineteenth century or telephones in the twentieth. High-speed internet means communication with the larger world, which is increasingly important for commerce, economic innovation and growth, and connection to others.
And yet millions of Americans don’t have access to broadband internet. According to the “2016 Broadband Progress Report” prepared by the Federal Communications Commission (FCC), 10 percent of all Americans—some 34 million people—don’t have access to high-speed internet (defined as 25 Mbps download and 3 Mbps upload). The distribution largely hurts rural Americans. While only 4 percent of urban Americans can’t access high-speed internet, a whopping 39 percent of rural Americans are stuck with sluggish connections, if they have any connection at all. Twenty percent can’t even get 4 Mbps download speeds.1 In a technologically driven world, this is a serious challenge. As Senator Angus King (an independent from Maine) has said, “Failure to provide broadband to rural areas of America is a death sentence for those communities.”2
In communities that do have high-speed internet access, there’s a different problem. Internet is often a monopoly. People have few if any choices. And because the monopoly knows it has customers captive, it charges higher prices for an inferior product. When the FCC studies internet access, it looks at developed census blocks. These areas are smaller than census tracts, which is how the census normally locates people. As of June 2016, the FCC found that 58 percent of developed census blocks have either no high-speed internet or only one option for it. The numbers are even worse if we move from 25 Mbps to 100 Mbps download speeds: 88 percent of developed census blocks have either no option or only one option.3 And here’s the kicker: these numbers are probably undercounting because the data count a census block as competitive even if only some people have two or more options. With such limited competition, it isn’t surprising that surveys show Comcast is one of the most hated companies in the country.4 And it isn’t surprising that average prices are higher in America than in comparable cities in Europe and Asia for all speeds.5
These challenges haven’t gone unnoticed. In cities throughout America, innovative leaders have tried to offer affordable high-speed internet to their citizens—through a public option.
Take Chattanooga, Tennessee. The southern city’s Electric Power Board (EPB) decided in 2007 to build a fiber network within a decade in order to provide the community with 1 Gbps internet. By 2015, the EPB was serving 60,000 homes and 4,500 businesses.6 The result is that Chattanooga is once again chugging into the future. Chattanoogans can get the fastest internet in the world for less than $70 per month.7 The result has been a tech boom in the city, with new jobs and businesses.8 Chattanooga’s schools have benefited as well, with students getting access to high-speed connections. The city’s public library is now considered a model for others across the country.9 High-speed internet through the public option has also meant benefits for the city’s utility. The EPB used broadband to make the city’s electric grid a smart grid. Four times an hour, 170,000 electric meters report to the EPB on the city’s power. As a result, EPB has saved customers more than $45 million and slashed the length of any power outages that occur.10
Another southern city, Wilson, North Carolina, located near the Raleigh-Durham research triangle, also implemented a public option for high-speed internet. Greenlight, the city’s service, offers a package of gigabit internet, phone service, and cable, in addition to free Wi-Fi downtown (which means businesses don’t have to pay those costs). As a measure of the program’s success, all seven of the biggest employers in town use Greenlight.11 Wilson’s experience with Greenlight has also created beneficial competition. Time Warner, the local internet provider, raised rates from 2007 to 2009, including jacking up prices 52 percent in nearby Cary, North Carolina. But in Wilson—where there was competition from the city’s public option—Time Warner didn’t raise rates.12
Seeing such great success, the leadership in Chattanooga and Wilson thought they might help others get access to their high-speed internet services. Residents of the “digital desert” just beyond those cities have “repeatedly requested” that the cities extend their internet to adjacent underserved communities.13 The challenge is that both Tennessee and North Carolina have laws banning municipalities from offering internet beyond their borders. In 2015, the FCC found that these laws interfered with the federal law charging the Commission with breaking down barriers to broadband investment, access, and competition.14 It preempted the state laws, allowing Chattanooga and Wilson to offer their services to needy customers.
The public option in Chattanooga and Wilson offered a high-quality service that has improved economic opportunity, reduced costs for businesses and the municipalities, and introduced necessary competition in a monopolistic sector. But unfortunately, that isn’t the end of the story. The FCC’s decision was appealed in federal court, and in 2016 the appeals court reversed the FCC, upholding the state laws and banning Chattanooga and Wilson from expanding service.15 To add insult to injury, Tennessee then got pushed even further away from the public option approach. After heavy lobbying, the state legislature passed a bill in 2017 that claimed to be a boon to rural areas without internet access. But the devil was in the details. Instead of allowing municipalities like Chattanooga’s EPB to expand its super-fast and cheap
internet to these underserved customers, the bill instead subsidizes Comcast and AT&T to provide rural internet to the tune of $45 million in grants and tax benefits. In a shocking display of disregard for rural Americans, the bill also only requires those companies to provide 10 Mbps internet service—nowhere near the high-speed service that communities must have if they are to succeed today. As one commentator said, “Tennessee will literally be paying AT&T to provide a service 1,000 times slower than what Chattanooga could provide without subsidies.”16
Credit Reporting
In 2017, America’s three private credit bureaus—Equifax, TransUnion, and Experian—came under fire when Equifax revealed that hackers had obtained the private information of 143 million Americans. As if the breach weren’t bad enough, Equifax waited weeks before notifying consumers about the hack.17 And Equifax made a hash of the cleanup as well, putting the burden on consumers to freeze their credit reports (a time-consuming, sometimes costly, and cumbersome process) or buy private identity-theft insurance.18
In the wake of the Equifax fiasco, many Americans began to focus on the immense power and limited accountability of the three credit reporting companies. Each company collects a raft of sensitive financial and personal information without our consent, and without any payment to us. And each company then uses the information to generate a credit score, according to a secret algorithm, which it then sells to buyers like banks, insurance companies, and employers. Your credit score will determine whether you can get a mortgage, rent an apartment, or even get a job. And the companies are only weakly accountable to consumers for the accuracy of the information they sell about us.