The level-playing-field (Federal Program, Negotiated Rates) Public Option with an Opt-Out mechanism is exactly where we should be setting our sights.
A Federal Program paying Medicare +5% is problematic for a number of reasons especially in that the markets where the effects of Medicare cost shifting are strongest would be even further disadvantaged by this arrangement, possibly leading to unsustainable systemic breakdowns. (And yes, I recognize that the status quo is leading us toward unsustainable systemic breakdowns.)
Additionally, some markets may indeed see drastic unintended consequenses from a public option, and so the ability to opt-out without a federal shutdown could actually be beneficial (as well as an incentive for the public option to benefit every state). This is a bit counter-intuitive in that this scenario is actually only more likely in locations who are probably the most pro-public option philosophically; while the states who are most certain to depend on a viable public option are the most likely to oppose it on a referendum or a state legislature (ideologically at least).Be that as it may, such a public option really would have a large enough market share to be considered robust, and has a very interesting, very seldom discussed Actuarial advantage over just about any other private health insurance.
Namely, Private insurance plans can only expect to keep their members for a finite number of years. Most of these members are through employer groups whose employees turn over at a fairly consistent rate. This turnover rate means that investing in preventative care today can only pay off in ten or fifteen years if that member is still employed by that firm and insured by the same company. (Of course, often times members leave and come back to the same company - but not enough and as predictably as necessary).
But a public option has a high likelihood of keeping a member for a long time as many of these members will be in lines of work which will not be employment dependent, (some will come in and out of course) but most relavantly, everyone will end up in Medicare!!Because everyone ends up in Medicare, the public option can actually become incentivized by saving future Medicare money by investing in longer-term health and wellness prevention. This is an absolutely critical connect-the-dots exercise.
Having the public option negotiate rates and contracts seperate from Medicare will allow better innovation along these lines (although we should expect the public option to probably base its fee schedule off Medicare as it enters into contract negotiations.)
The other critical piece is that the Individual Mandate needs teeth. The insurance companies were dickheads when they came out with their reports a couple of weeks ago, but they were right on the point about how critical it is that an individual mandate be an actual mandate. Self-selection is just too obvious an insurance problem and with the lengths we are going to make insurance affordable and accessible to everyone, we need to make it unacceptable to choose to go uninsured.
