In an earlier post, I criticized managed care proponents for promoting concepts defined only by the aspirations of their proponents. HMO, ACO, “medical home,” and “patient-centered this and that” are examples.
The “public option” (PO) is the latest example of a buzzword defined only by the aspirations of its proponents. The PO, first introduced to the public a decade ago by Jacob Hacker, Democratic presidential candidates and advocates of what would become the Affordable Care Act, has been revived by Democrats over the last five months.  Hacker, Hillary Clinton, Barack Obama and others say a PO would reduce premium inflation. But they refuse to define the PO, which makes it impossible to determine whether it could survive, much less reduce premium inflation. It’s not even clear whether proponents are proposing a PO open to all Americans or just to those who shop on the state exchanges established by the Affordable Care Act. The best they can do is say the PO will be “like Medicare.” That’s not a definition. That’s an aspiration.
It’s way past time for PO advocates to tell us how the PO will become “like Medicare.” In the absence of a concrete description of the PO, Americans should conclude it will not be anything like Medicare, but will instead resemble the Obamacare co-ops” – tiny, Balkanized, undercapitalized, often victimized rather than protected by crude risk adjustment, and up against one of the richest and most consolidated industries on the planet. The co-ops are failing. Medicare is not failing. Medicare insures nearly 60 million people, 40 million of whom are in the traditional fee-for-service program. The FFS Medicare program enjoys low administrative costs (1 to 2 percent of expenditures versus 15 to 20 percent among insurance companies) and pays lower rates to providers than the insurance industry does for its non-elderly customers.
Medicare enjoys those advantages – low administrative costs and low provider payment rates – because it is the sole payer of providers for the large population it serves. Unlike the PO and the co-ops, Medicare didn’t have to invade highly concentrated markets and, market by market, pry customers loose from established insurance companies to build up its base. It was handed that base – the nation’s 19 million people over age 64, a group the insurance industry didn’t want – by its enabling legislation in 1965, and Medicare enrolled 99 percent of that base within eleven months after LBJ signed the Medicare law.
How will the PO build its base among the non-elderly? How will the PO retain it? Who knows? PO advocates resolutely refuse to tell us.
Even the PO’s godfather won’t tell us
Jacob Hacker is to the PO what Paul Ellwood was to the HMO and Elliott Fisher has been to the ACO – the inventor of the concept and the chief propagator of the notion that the concept should be defined by aspirations rather than by descriptions of mechanisms the concept will employ. Hacker’s latest op-ed, which appeared in the October 28 New York Times illustrates this technique. In this op-ed, Hacker presents one aspiration after another. He assures us the PO will “ensure that everyone has a choice, it will … pull more people into the [exchanges]…,” and it will “offer a broader network of providers.” Saving the best for last, he asserts, “The biggest advantage of the public plan, however, is its greater ability to restrain prices.” But how will the PO do all this? He doesn’t say. 
Hacker and other PO proponents not only refuse to tell us, they eagerly assure us the PO will never become a single payer. The PO is not a “one-way ticket to single-payer,” Hacker wrote in that New York Times op-ed. PO proponents assure us, rather, that the PO will merely “compete” with private insurance companies “on a level playing field.”
The PO used to be clearly defined
The PO was not always a squishy buzzword. Unlike the ACO and other managed care fads, the PO actually began its journey from obscure idea to famous buzzword as a clearly defined proposal. Hacker described his first version of the PO (he called it “Medicare Plus”) in a paper published in 2001 as part of a project funded by the Robert Wood Johnson Foundation called Cover America . He published a slightly altered version of this proposal in 2007 (he called this version “Health Care for America”). In these papers, he bestowed four advantages upon his PO:
- On the day the PO opened for business it would, as Medicare did, have tens of millions of guaranteed customers (Hacker would have automatically enrolled all Medicaid and SCHIP recipients into the PO, plus millions of the uninsured);
- only PO enrollees could get subsidies from the US Treasury;
- any American citizen would be able to buy into the PO; and
- the insurance industry would be required to offer the same minimum level of benefits the PO offered. 
You don’t have to have a PhD in economics to understand that a PO with these advantages would start out big and would grow quickly (this assumes, of course, that Congress could be persuaded to create such a PO). If you guarantee a government program tens of millions of customers on the day the program opens for business, and you subsidize the purchase of the government’s product but not the private sector’s product, and you force the insurance industry to offer the same coverage the government program covers, you guarantee the government program will not only start out with significant market share but will seize more market share from the private insurers as time goes by. 
The Lewin Group, a private consulting firm, analyzed Hacker’s 2001 and 2007 papers. According to the Lewin Group’s report on Hacker’s 2007 paper, (published in 2008, by which time Lewin was a subsidiary of United Health Group), “Health Care for America premiums would be lower than comparable private insurance due to lower provider payment rates, administrative costs and low-income subsidies.” (p. 13) Specifically, the Lewin Group found that as of 2007 Health Care for America would:
- Enroll 129 million non-elderly (or 50 percent of the non-elderly);
- enjoy overhead costs equal to 3 percent of expenditures;
- pay hospitals 26 percent less and doctors 17 percent less than the insurance industry; and,
- set its premiums 23 below those of the average insurance company. 
Prior to 2009, Hacker and his allies celebrated these Lewin Group findings, especially the conclusion that the PO would insure half the US population under 65. In his 2007 paper, for example, Hacker stated: “A single national insurance pool covering nearly half the population would create huge administrative efficiencies.” (p 5) But somewhere around 2009 Hacker went silent about the original version of his PO. He no longer described the PO as pre-populated with Medicaid enrollees, for example. Since 2009 he has sold the PO the way ACO proponents sell the ACO – as something defined only by aspirations. The PO has become just another flabby buzzword, another political Rorschach blot onto which we are encouraged to project our hopes and fears with abandon.
Why did this happen in 2009 and not before? Hacker went silent on his “single national insurance pool covering nearly half the population” in 2009 because that was the year Democrats rejected his original PO and accepted in its place a fuzzy, impotent version of the PO.
The Democrats disembowel Hacker’s PO
In the summer of 2009 House and Senate Democrats unveiled three bills that would contribute to the Affordable Care Act. Two of those bills, one written by three House committees and another written by the Senate Health, Labor and Pension (HELP) committee, authorized a PO. But the Democrats’ PO was a mere shadow of the PO Hacker originally proposed. According to the Congressional Budget Office, the PO announced by the House Democrats in June 2009 would insure 10 million people at most, while the PO unveiled by the Senate HELP Committee in July 2009 was unlikely to insure anyone.
How did this happen? How was Hacker’s PO transformed from a program the Lewin Group said would insure 129 million people into one that would insure zero to 10 million people? Answer: The Democrats stripped Hacker’s PO of three of its advantages: Pre-population; subsidies only for PO enrollees; and availability to all Americans. Instead of starting out on Day One with tens of millions of enrollees, the Democrats’ mouse version of the PO would start with zero enrollees; instead of subsidies going only to PO enrollees, subsidies would go to enrollees of both the insurance industry and the PO; and instead of the PO being open to all Americans, it would be accessible only to Americans eligible to shop on the exchanges. In sum, the Democrats retained only one of the four advantages Hacker had bestowed on his original PO – the one requiring the insurance industry to cover the same benefits the PO had to cover.
Why did Democrats do this? We know America’s Health Insurance Plans worked hard to defeat the PO in any form. It is reasonable to infer the Democrats who wrote the bills were persuaded by insurance industry lobbyists and others that Hacker’s original PO was not the politically feasible alternative to a single-payer system that Hacker had claimed it was. But we don’t know that for sure because no one – not Hacker, nor any Democrats involved in writing the bills – has ever publicly acknowledged, much less objected to, the watering down of Hacker’s original PO by congressional Democrats in 2009. Hacker, in fact, repeatedly praised the new mouse version of his PO as an “essential” component of an effective cost containment strategy. For example, in testimony before the House Education and Labor Committee on June 23, 2009, he said the PO was essential and then described the House’s draft legislation as “enormous progress” (see p. 70).
Hacker has given many interviews and written many articles since the summer of 2009, but to my knowledge he has never warned his audience that the PO proposed by congressional Democrats was a mere shadow of his original PO. To the contrary, Hacker continues to this day to claim his PO is “like Medicare” – big, powerful, efficient, and guaranteed to do great things for Americans. But he does not cite his 2001 paper or his 2007 paper, or Lewin’s analyses of them. He merely gives us his aspirations for his PO.
Hacker must stop doing that, and if he won’t do it voluntarily, Democrats should ignore him. Democrats cannot afford to endorse yet another over-hyped, detail-free buzzword and hope CMS or some other federal agency can turn the buzzword into an effective program. Democrats should demand of Hacker that he give them details about his PO, not just his hopes.
The PO, the co-ops, and Trump’s “across-state-lines” proposal have a common enemy
I encourage Bernie Sanders and the other 32 senators who signed a pro-PO resolution six weeks ago to think concretely about what it will take for any entity, be it a PO or an insurance company, to break into an established insurance market these days. To facilitate concrete thinking, I will post another essay here shortly in which I describe research on Donald Trump’s notion that premium inflation could be reduced if only insurance companies in lightly regulated states could sell “across state lines” into more heavily regulated states. This notion has been around for decades and it hasn’t worked. It hasn’t worked because the vast majority of insurance markets have been virtually impenetrable for approximately the last quarter-century. This impenetrability is due to the high degree of concentration in most markets, and to the spread of managed care cost-containment tools, notably the use of limited networks. Large established insurance companies in one state simply don’t want to tangle with the big insurance companies long established in other states.
If the 1,000-pound gorillas in the insurance industry don’t want to tangle with 1,000-pound gorillas in other states, why should we expect that a PO will crack not just a few markets but markets all across the country? We deserve answers to that question, not more hype.
 In a paper published in Health Affairs in 2010, Helen Halpin and Peter Harbage give Hacker credit for popularizing the “public option,” but they claimed the idea originated in a proposal called CHOICE developed during 2001 and 2002 as part of a California project called the Health Care Options Project. In the article they described CHOICE as a publicly run fee-for-service program that would compete with insurance companies. But judging from the materials cited by Halpin and Harbag, CHOICE did not use the label “public option” and bore little resemblance to Hacker’s original PO. A diagram of CHOICE presented in one of the cited materials described CHOICE as the equivalent of a Medicare Advantage program, not a FFS program. In other words, it appeared that insurance companies were supposed to compete with themselves. They were supposed to make their policies available for sale both directly as well as indirectly through a publicly administered program like Medicare Advantage.
 Here is another example of PO proponents expressing great hope for the PO but defining it only as “like Medicare.” This example is from a resolution introduced in the US Senate on September 15 by Senator Jeff Merkley (D-OR) and 32 other Democratic senators: “Whereas giving all Americans the choice of a public, nonprofit health insurance option would lead to increased competition, reduced premiums, cut wasteful spending on administration, marketing, and executive pay, and ensure consumers have the affordable choices they deserve; ….Whereas public programs like Medicare often deliver care more cost-effectively by limiting administrative overhead and securing better prices from providers….”
I do not discuss here the “Medicare buy-in,” a proposal its advocates often call a “public option.” This “piggyback” version of the PO presents different issues from the PO Hacker originally proposed and the vague version he promotes today. Referring to the buy-in as a PO only adds to the great confusion PO advocates have already created by not defining the PO.
 I last read Hacker’s 2003 report in 2009. But a few days ago when I searched for it I was unable to find it. I find only this summary of the Robert Wood Johnson Foundation’s Cover America report. It contains a one-sentence summary of Hacker’s “Medicare Plus” proposal.
 Hacker also authorized the PO to use Medicare payment rates, but that was at best a superfluous requirement and at worst an impediment. The requirement would be superfluous if the PO were as large as Medicare; the PO could simply use its size to demand Medicare-like rates. If, on the other hand, the PO started out with few enrollees, which would have been the case under the mouse version of the PO endorsed by congressional Democrats in 2009, the requirement that the PO use Medicare rates would have backfired. PO administrators would have been placed in the impossible position of asking doctors and hospitals to accept low rates when those administrators would have almost no leverage over providers because they could not promise to deliver large numbers of patients.
 The Medicare Advantage program illustrates this tilted-playing-field principle in reverse. If you give large subsidies to private insurance companies participating in Medicare Advantage that you don‘t give to the classic FFS Medicare program, you guarantee the insurance companies will be able to lure large chunks of FFS enrollees out of the FFS program and into Medicare Advantage. The insurance industry loves tilting the playing field in their favor. Conversely, the industry really, really doesn’t like any proposal that would tilt the playing field against them. Hacker’s original PO tilted the playing field against the insurance industry despite his claim that he was only encouraging “healthy competition” on a “truly ‘level playing field.’” The industry was not fooled by Hacker’s rhetoric.
 The Lewin Group reached very similar conclusions in its October 2003 report on Hacker’s 2001 paper. Although I don’t doubt the Lewin Group’s conclusion that Hacker’s original PO would seize an enormous portion of the non-elderly market, I do question the Lewin Group’s assumption that the PO’s overhead would equal 3 percent of spending. That seems low. The PO would not be a single-payer. It would be a large insurer selling insurance in a multiple-payer system. It would, therefore, incur many of the administrative expenses insurance companies incur.