Testing the Public Option
posted by Michael Abramowicz
One of the most contentious issues in the current health reform debate is whether a reform bill should include a “public option,” allowing individuals and/or businesses to choose the United States as their insurer. Paul Krugman, who believes that government can deliver health care more cost-effectively than the private sector, insists that providing an additional option can’t do any harm and could do a lot of good. Greg Mankiw counters that if taxpayer funds are used to cover shortfalls, now or in the future, then the government option has a built-in advantage that could lead to universal coverage. Because in the absence of taxpayer support, the United States would essentially just be a nonprofit health plan, Mankiw argues that the public option can’t do any good and could do a lot of harm.
Mankiw likes challenging Krugman to bets, so let me propose one that could serve as a compromise on the public option issue: an experimental test of the public option. Here’s how it would work: Legislation would create a public option for a test period, perhaps three or five years. Some number of randomly selected individuals and businesses (a large number for statistical comparison purposes), but would be given some up-front cash incentive if they agreed to be randomized into either the public plan for the test period or into their choice of private plan.
An agency independent of the health agency (with, ideally, politically balanced membership) would distribute detailed health surveys to participants, particularly at the end of the period, and conduct a comparison assessment. The purpose of the surveys would be to compare the public option with all private plans (not to compare private plans with each other, especially because this would increase incentives to manipulate data).
The agency’s task then would be to compare benefits and costs. Benefits can be measured by assessing the health status of the participants. (See chapter 3 of this excellent (and free online) book for a detailed study of health impact measurement.) Ideally, the legislation would provide some indication of a scale along which individual health would be measured, and an indication of how to convert these health measurements into dollar values. The surveys and measurement would be costly, but these measurements could produce useful information quite apart from resolving the bet, by producing publicly available data, with appropriate privacy protections, that could be quite useful for research purposes. One might also factor the variance of health status by income group into the measure of total benefit, so that an approach that produces more equitable health outcomes is counted as producing greater benefit.
Meanwhile, the costs should include the sum of all private money and government subsidies spent on providing health care for both the public option and the private option, respectively. (If a participant in either plan ends up switching to Medicaid or Medicare, which would be separate from the public option, we would count these expenses to the plan to which the person was originally assigned, to reduce the danger of bias from nonrandom attrition or crossover.) The cost measure would also take into account the time costs to participants in medical visits, filling out forms, and the like.
The legislation should specify changes that would automatically occur based on the results of the experiment. If either the public or private plan produces better health at lower costs, the comparison is simple, but if one turns out to provide better outcomes for a greater cost, the legislation could include a formula determining whether the additional cost would be justified. If the public plan performed better according to the specification, then there would automatically be some expansion in the public plan at the end of the test period, for example by increasing subsidies for the public plan. If the private plan had a lower ratio, then there would be a contraction or elimination of the public option. A more nuanced approach might calculate cost/benefit ratios for different groups, based on either demographic characteristics or initial health status, and automatically result in more fine-grained modifications of the reforms.
The experiment would thus be self-executing in the sense of automatically changing the policy baseline. Of course, it would be possible to argue about the appropriate interpretation of the results even after the experiment. But it’s useful to force legislators to craft ex ante measurements and procedures for assessing and automatically changing policies. This saves the legislature from the enactment costs of subsequent changes and forces the legislature and the public to focus on what it is actually trying to achieve. Moreover, the possibility of such a public experiment should make health reform more palatable to both those who are optimistic and those who are pessimistic about the public option. As long as each side genuinely believes what it is arguing, then each side should expect the experiment ultimately to produce a reform more to its liking.
June 9, 2009 at 7:38 am
Posted in: Health Law
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Responses (3)
JP - June 9, 2009 at 11:01 am
This sounds like the proposals for school-voucher pilot programs, and seems likely doomed to the same inconclusive fate. Outcomes after 3 or 5 years will likely be remain very similar; it seems probable that any disparity will be statistically insignificant. Market advocates will argue that individual health doesn’t change in a material way in such a short period of time. Public option advocates will argue that the test was too small; the program will only really work if they have the economies of scale and data aggregation from a much larger program.
Michael Abramowicz - June 9, 2009 at 11:07 am
JP, I agree that ex post both sides will be able to come up with some argument for why they are still right. That’s why it’s important for policymakers to try to come up with measurements on which they have different predictions for 3-5 years out, and make policy contingent on that. I disagree that results are likely to be statistically insigificant. If we have a sufficiently large sample (say, 200,000 insureds), we should be able to measure even slight differences in effectiveness. Meanwhile, if public advocates believe that the public option will only work with a “much larger program” (i.e., single payer), then it would be helpful if the debate forced them to say that.
Frank Pasquale - June 9, 2009 at 2:18 pm
HHS has some experience in planning pilot programs (e.g., in gainsharing), and perhaps this idea could be modeled on that policy experience. My worry is that the private plans would treat the experimental subjects better than they treat customers generally. I think it would be hard to keep the subjects from telling their private plans that they were part of this experiment, and that the plan had some stake in their health status.
I’d also focus this on the chronically ill, where most of the costs come from.
Finally, I think that the public plan has many other goals aside from improving health outcomes. For example, even if the experimental subjects in the public plan did not have measurably better outcomes than those in private plans, they would have much more financial security than they would have without that option (something that would have many other benefits for the economy: (see
http://www.concurringopinions.com/archives/2007/05/entrepreneurs_f.html and
http://www.prospect.org/cs/articles?article=a_strong_safety_net_encourages_healthy_risk_taking
not to mention our moral standing in the world.
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