Health Care Legislation, Part 4:
The 'public option' and 'choice architecture'
27 Oct 2009 in Regulatory Science, Regulatory Policy, Legislation
The health care legislation debate over the past few days increasingly contains an odd twist: Should the "public option" be made ... optional?
The question is a strange one. Normally, an "option" is something that is not part of the standard equipment. Buyers can decide for themselves whether or not to buy an option. Generally, consumers prefer to have options rather than products that come one-size-fits-all.
In the health care legislation "market," however, political debate now focuses on whether there are conditions under which 60 Senators can be assembled to support some version of the so-called "public option." Without 60 votes, the minority would filibuster and the majority would table the debate. (The traditional filibuster, during which a Member must talk without relinquishing the floor, was years ago replaced with a gentleman's version. By lowering the price, the Senate increased the supply of filibusters.)
Today's Senate debate is well-informed. Senators who support the public option want it to become the dominant method for health care delivery in the US. Senators who oppose the public option want to minimize the federal government's participation in the health insurance market. Senators on the fence are agreeable to some role for federally provided insurance as long as it doesn't get "too big."
So the debate today is a simple one: Can a public option be crafted that is not too big for opponents but not too small for supporters? Choice architecture in legislative design now comes to the fore.
There are three crucial elements of health care legislation choice architecture:
- What is the default?
- What is required to depart from the default?
- Are there conditions that would automatically trigger a departure from the default?
Specifying any one lever is not sufficient to control the outcome. For example, proponents of a single-payer government program can achieve it even if there is no public option in the default. All they need is a trigger mechanism that creates the public option automatically at a future date if certain conditions are shown to exist. Conversely, public option opponents can prevent the government from assuming a large role even if a public option is included in the default. All they need is a trigger mechanism that sunsets the public option at a future date. In both cases, it is essential to control the trigger, not the default.
Lately there has been considerable discussion about whether to allow States to "opt-out" of a public option. Another option, which we have not seen proposed, is to allow the States to "opt-in." Presumably, States would have to enact legislation effecting this choice, and that imposes a burden on whomever would seek to change the status quo. There is ample evidence from the behavioral economic literature (as if scholarly research really was needed to prove the point) that the choice of opt-out or opt-in significantly affects the outcome. Under a default that includes a public option but has an opt-out, most States would end up with a public option. Conversely, under a default that lacks a public option but has an opt-in, most States would end up without one.
Two semantic issues remain. First, it's odd to characterize something as optional if it's really mandatory. If the so-called public "option" is included in the default, or a choice architecture is established that essentially ensures its future dominance, it's more transparent to call it a "federal standard" or a "federal minimum." If opting out is hard, then it's misleading to call the plan an "option."
Second, it's peculiar to vest States rather than citizens with the authority to opt in or opt out. Health insurance and health care have always been construed as private goods. Herein lies the real controversy: Public option supporters would convert health care into a public good, whereas public option opponents want to preserve its private character.
