The Senate compromise - hardly a better alternative

The Gang of Ten has recently come out with a new compromise in order to get rid of the public option: expanding Medicare downward to include people over 55 years old and leaving the rest of the population in the hands of various non-profit plans overseen by the Office of Personnel Management (OPM), which oversees Federal Employee's Health Benefit Plan (FEHBP).

The public option was put forward for two vital reasons - it should amass quite a bit of bargaining power, and more importantly its incentives as a government-run entity would be to lower cost while keeping the population healthy.

Keeping these vital reasons in mind, let's look at why the compromise cannot match up to the public option.

In terms of the ability to lower prices through negotiations, breaking up the population only reduces the bargaining power. Moreover, breaking up the population by age asks for a death spiral. Many argue that the public option will select for the sickest people without prior access to insurance - I'm no expert but I'm not so sure that this will be the case. Without the age divide, there could be a sizable number of relatively healthy, self-employed enrollees to balance the sicker counterparts. Keep in mind that there are the uninsured, and then the under-insured. The uninsured are probably sick, but the under-insured could look very much like the self-employed Mary and Mack Kroner - they are not super sick, they have been able to afford some necessary preventive care, if only barely. The uninsured and the under-insured, spread across all age groups, could make a nice, balanced risk group with reasonable premiums. We could be pessimistic and even say we don't know - the public option may or may not create the death spiral, but the Senate compromise to break up the age group definitely aggravates the likelihood. A good plan looks to create the biggest, most diverse group of enrollees for better risk-sharing, not breaking it down, especially not by age. This compromise wants to dump the sicker, older population onto Medicare, while leaving the younger, healthier population to non-profit plans, potentially run by friends of some powerful voices in the Senate?

In terms of incentives, keep in mind that non-profit does not equal government-run. The government on paper has the best interest of its people in mind - non-profit can aim to do whatever it wants as long as it does not make profit. The public option will be held accountable, while the smaller, fragmented non-profit plans will probably not be, considering the fact that OPM currently does not regulate the plans it oversees. In terms of costs, the public option does not need to advertise or lobby like smaller non-profit plans, and its scale could dramatically reduce operating costs, which means lower premiums for everyone.

Considering all the hypothetical arguments against the public option, this compromise only accentuates those shortcomings. The details of the compromise are not yet released, but so far it does not seem to pass as a better alternative. The Democrats in the Senate need to get their acts together, and Joe Lieberman just needs to get lost.