The public plan has been called a political “litmus test”, but in reality it is much closer to a canary in the proverbial coal mine. Several progressive (Ezra Klein, Matthew Yglesias, John Cohn) writers have published articles stating that while the public plan is important, it is not indispensable to real health care reform.
First, I will concede that it is technically possible to create a good health care system, that would be acceptable to progressives, without creating an open public option or single payer. The Netherlands and Switzerland are examples of good, highly regulated market-based systems. (More about that below)
The problem is, I see no reason to believe that there is any Republicans would support the heavy handed regulations needed if there is not a public option. I think Republicans and the health insurance industry would fight equally as hard (or harder) to kill these strong regulations as they are fighting to kill the public option. The public plan is more important than just offering a government insurance option. It is the first battle between policy experts promoting reform and industry lobbyist protecting profits. If lobbyists are able to kill the incredibly popular public option, it shows they have the power to dictate the shape of health care reform.
If strong grassroots support can't protect the public plan, I don't know how it will save dozens of smaller wonky regulations. The choice will never be between a public plan and a well structured highly regulated market. It is between real reform and fake reform. If the reformist can't win on the issue of a public plan they have almost no hope winning the battle for tough regulation.
Even if they did manage to create a highly regulated health care system without a public plan, I don't see how it would be nearly as stable. Public programs like Medicare, Medicaid, the Post Office, Social Security, etc. are politically very sticky. Eliminating them would be a huge political lift. On the other hand, removing regulations is easy. Regulations can be weakened or removed one at a time until the whole regulation safety net is unraveled.
To make a “market based system” work in the Netherlands and Switzerland requires a huge amount of heavy handed government regulation. In the Netherlands private insurance only covers relatively healthy people. The most expensive patients that need long term care are covered by a mandatory state run insurance plan. Private insurance companies must offer a well defined set of benefits and must do so at a fixed price for all. It is illegal to charge anyone a different price for any reason. This includes co-pays, deductibles, exclusions, and any other possible trick. They do allow they say of supplemental insurance that covers the few things not part of the basic benefits package.
They use a form of strong risk equalization. The government pools a large fraction of premiums and distributes the money as it sees fit to insurance companies to discourage cherry picking only health customers. There are powerful competition regulators that check for abuse, monopolies, cartels, and acts against customer interest.
Switzerland uses a similar system. In Switzerland people choose from highly regulated private insurance companies. Premiums are based on a strong community rating system with only minor variations based on only sex and age. All private insurance companies must offer at least the same government-defined basic benefits. All benefit plans most be open to all comers. Most importantly, it is illegal for insurance companies to make a profit on the basic benefits package. They may only make money on supplemental insurance that covers things like dentistry or private hospital rooms. It should also be noted that Switzerland has one of the most expensive health care systems. (that should make it a poor choice as a model for reform.)
I just can't see Republicans or the health insurance industry agreeing to this level of regulation. Is there any reason to believe insurance companies would be more willing to accept a law making it illegal to make a profit on basic health insurance plans than a public option?
The public plan is about more than just providing a public insurance option. It is smart policy, would reduce the cost of reform, and is incredibly popular. If the public plan is not included, it means this “reform” effort put the interest of big business and politicians over that of the public. If the battle over the public option is lost, the people advocating real health care reform in the public interest are in serious retreat. Like a canary in a coal mine, if the public plan is dead it means all the oxygen is quickly being sucked out of quality reform.