Is Ezra Missing the Point?

Ezra Klein is continuing to hurl ad hominem attacks at Joe Lieberman, some of which are reasonable and fair and some of which are absurd and speculative. Regardless of how you feel about Lieberman, I think it's clear that there is something missing from this critique:

[T]ake the public option. Lieberman has cycled through a variety of explanations, none of which made the slightest lick of sense. First, he said the public option would increase the deficit. That's flatly untrue. Not only did CBO say the exact opposite, projecting savings of $25 to more than $100 billion, depending on the construction, but the idea didn't even make conceptual sense -- the cost of health-care reform comes from the subsidies, which apply to private and public insurance equally.

Well, sort of.

Regardless of its construction, the public plan would have probably attracted more people who received federally subsidized care. So, while the subsidies would technically "apply to private and public insurance equally," it's unlikely that they would be allocated equally. The public plan would get an unequal share of the subsidies, but this probably wouldn't be enough to make up for the adverse selection problem.

As Ezra himself explained:

[B]ecause the public option is, well, public, it won't want to do the unpopular things that insurers do to save money, like manage care or aggressively review treatments. It also, presumably, won't try to drive out the sick or the unhealthy. That means the public option will spend more, and could, over time, develop a reputation as a good home for bad health risks, which would mean its average premium will increase because its average member will cost more.

The nightmare scenario, then, is that private insurers cotton onto this and accelerate the process, implicitly or explicitly guiding bad risks to the public option. In theory, the exchanges are risk-adjusted, and the public option will be given more money if it ends up with bad risks, but it's hard to say how that will function in practice.

If this is true, can the "level-playing field" public plan really survive in a competitive exchange without a government backstop? If it can't, will the government attempt bail it out? This would undoubtedly increase the federal deficit.

Moreover, despite what the CBO says, some of the cost-saving provisions in the Senate health care bill are unlikely to actually reduce the deficit because they're not going to be implemented.

Here is what David Brooks wrote in today's NYT:

The bill is not really deficit-neutral. It’s politically inconceivable that Congress will really make all the spending cuts that are there on paper. But the bill won’t explode the deficit, and that’s an accomplishment.

Back in September, CBO director Doug Elmendorf acknowledged this point:

These projections assume that the proposals are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation. For example, the sustainable growth rate (SGR) mechanism governing Medicare’s payments to physicians has frequently been modified (either through legislation or administrative action) to avoid reductions in those payments. The projected savings for the Chairman’s proposal reflect the cumulative impact of a number of specifications that would constrain payment rates for providers of Medicare services. The long-term budgetary impact could be quite different if those provisions were ultimately changed or not fully implemented.

There is fundamental disconnect between the CBO projections and political reality.