Public Option Hardest Ball

Robert Waldmann

The proposal made here in “Public Option Harder Ball” received enthusiastic support when it was coincidentally semi proposed as opt-in by Sen Carper (D-Bankruptcy Reform) and modified to to opt-out by Senator Schumer (D-tough guy). As presented here on September 4 it was clearly unconstitutional and needed work.

Now I have another idea. I’m not sure if it is a joke or a debate transforming proposal. I got the idea from Rich Lowry who asked “Does a state get to opt-out of the taxes too?” Hmmm now that is an interesting idea.

First don’t give Lowry too much credit for originality. The bogus argument is clearly the right wing talking point of the day. I have no way of knowing who thought of it or how it spread.

Lowry is pretending that “the taxes” pay for the public option. Since the cost of a robust public option is negative $ 100 B over ten years*, I guess the way to implement his proposal is to give states a second option — the option to voluntarily send money to the Federal Treasury to make up for the extra cost due to their choice to opt out of the public option. the value of this second option is zero, so, taken literally, Lowry’s proposal amounts to nothing.

But one can make sense of it. States could be allowed to opt out of federal financing. That is they get the medicare tax, the excise tax on cadillac plans. the share of income taxes that go to medicare and medicaid the whole boodle and, in exchange they must provide medicaid, medicare and health care reform insurance subsidies to their citizens.

That way no state would subsidize health care in any other state.

If Rich Lowry were sincere he would support such a proposal. he would also be unable to travel safely in Red America if the massive subsidies they get from Blue America were actually cut off. Of course that won’t happen. Senators from states which get more back from the Federal government than they pay in taxes will make very sure that the proposal is blocked. The utter hypocritical dishonesty of Lowry’s argument will be made clear.

OK semi serious modified proposal. This just concerns health care reform. The hard part is to decide how to distribute the Medicare budget cuts. I’d say a state can opt out of the fiscal consequences of health care reform if it
1) pays all of the cost of expanding medicaid
2) pays the subsidies.
3) keeps all excise tax revenues collected in the state
4) Gets a share of the medicaid cuts proportional to medicare payroll taxes paid collected in the state.

4 is the hard part. Medicare is largely funded with income taxes. I just use payroll tax revenues as a rough yardstick. The plan would probably work fine if the share of Medicare savings were proportional to population.

Now if Texas were to opt out of the fiscal aspects, they would give a huge gift back to the rest of the USA. They have a huge number of currently uninsured people many of whom would get subsidies. They have a lot of poor people. Generally a larger fraction of the population of states with Republican senators are poor enough to qualify for expanded medicare. Also a larger fraction are poor enough for subsidies.

In contrast, my proposal would be wonderful for New York, Massachusetts and, especially Maine. Maine surely would gain from opting out of subsidizing Texas.

Basically all egalitarian Federal programs transfer from Blue states to right wing, anti big government, states rights states. Their representatives make a career of biting the hand that feeds them. They keep doing it, because the hand keeps coming back to be bit again. I think offering to leave them fiscally alone will make them sputter and gasp and maybe even deal with reality (I’m a dreamer).

*Update: One correction and one update. I remembered the CBO score of the robust public option incorrectly. The CBO said it would save $ 110 Billion over 10 years not just $100 billion as I wrote. I apologise for the error.

The update is that this is no longer relevant. There will be no robust public option. Democratic leaders in the house have given up on it and are going with a level playing field public option

In the end, Pelosi, D-Calif., and other House leaders were unable to round up the necessary votes for their preferred version of the government insurance plan — one that would base payment rates to providers on rates paid by Medicare. Instead, the Health and Human Services secretary would negotiate rates with providers, the approach preferred by moderates and the one that will be featured in the Senate’s version.

The CBO estimates much lower savings from this version of the public option. However, it has scored it. The CBO estimate of the cost is negative $ 25 billion.

So thank the moderates in the House and Senate dear US taxpayers**. According to the CBO, you just donated roughly $85 billion over 10 years to health insurance companies and health care providers. You can hope that more money for providers will lead to better care.

** I live in Italy and pay roughly 0 US taxes due to the foreign earned income exclusion and my meager wealth. I do pay lots and lots of taxes. A larger share of my income than anyone in the US I guess. Of course all of my earned income comes from taxpayers, so I can’t complain.

Also note “earned” is a legal term and expresses no opinion about whether it is possible for me to really earn that money while spending so much time typing away on the web.