Public option vs. individual mandate

The Democrats' health reform plan(s) has a grand bargain at its core: insurance companies lose the right to cherry-pick their customers through higher rates for people with pre-existing conditions and lifetime caps; in exchange, everyone is required to buy health insurance. The individual mandate is necessary because without it the market for health insurance is subject to an adverse selection problem: healthy people opt out, which raises the cost of serving the average person in the pool, which causes insurers to raise rates, which causes more healthy people to drop out, etc.

But there is a political danger in the individual mandate: how do you tell a person struggling to raise a family on $40,000 per year that he/she needs to pony up $10,000 for health insurance? Well, you subsidize the purchase, bring it down to a manageable number - $5000? $3000? But the subsidies are expensive; if insurance premiums keep rising at the rate they have in recent years the program becomes unsustainable. Enter the public option: a strong public option can help control costs and make generous subsidies feasible. At the least, allowing people the option of buying a public plan keeps them from feeling like the government is forcing them into the arms of the rapacious private health insurance companies.

But the insurance companies and their lackeys in Congress have fought the public option tooth and nail, and probably have killed it. Now liberals have to ask themselves, is the bill palatable without the public option? It's not just a matter of good policy, it's a matter of political survival for many Democrats.

Matt Steinglass argues that liberals must honor the original bargain - insurance reform for the individual mandate - and try to fix the mandate before it takes effect in 2013. That's a reasonable argument, but there's another equally reasonable one: drop the mandate, keep the reforms, and screw the insurance industry. Then put the onus on the insurance industry and its lackeys to fix the system before 2013. If they want an individual mandate, they'll have to give something - a public option, stricter regulation, generous subsidies, something. I look forward to the reception the Lieberman-Nelson Health Insurance Reform bill gets in Congress.