There are a lot of essential pieces to health care reform. First, before ranking the various Public Options, here are the brief fundamentals of reform (familiar to some already):
1. Effective Coverage without loopholes/Individual Mandate/Individual-Family affordability subsidies (These pieces require each other in order to work well)
2. Beginnings of move away from paying for quantity (fee-for-service) to Paying for Quality.
3. Exchanges that allow individuals and small groups to obtain the insurance prices that larger groups obtain, such as by enforcing Community Rating (everyone in a local area (community) pays the same rates as all other members of their age group, regardless of status).
Exchanges can also increase competition and reduce cost inflation if they are set up to allow more people to participate and if they have defined benefits plan levels required ("bronze," "silver," etc.) so that insurance purchasers can compare plans in an apple-vs-apple manner.
4. Permanent Reinsurance (sharing the cost of the most expensive patients among all insurers, without an expiration, as compared to the proposed 3 years expiration. The best form of reinsurance is based on the number and type of conditions instead of total costs).
5.0 Comprehensive Insurance Reform
5.1 A widely available Public Option.
(note that the current proposals limit who can access a Public Option, since the Option would only be available in the new exchanges, which themselves are only open to certain people. Senator Wyden has proposed to open up the exchanges more widely to more people. Update: many people don't realize the limited availability being proposed. Finally, note that even though a Public Option as currently proposed would be initially available to only a limited portion of the population, the exchanges and thus any Public Option will become available to more people over time. Getting the structure right at the beginning is a plus.
Comprehensive Insurance Reform done correctly has the outcome that insurance would not discriminate even indirectly in benefits or premium prices against individuals or small groups by any quality of any kind except age, community location, and tobacco use.
Further, good insurance reform would allow insurers to offer health incentives such as vouchers for certain health purchases such as exercise equipment/gym membership. The real health costs incurred by unhealthy foods and second-hand smoke can be handled separately via special sales taxes, with the sales-tax revenue sent into the federal health care budget.
But for Comprehensive Insurance Reform to actually work, a lot of necessary pieces must be set up correctly.
That might not happen.
An alternative that seeks to eliminate the uncertainty of relying on insurance reform is the Public Option. The point of the Public Option is to use a powerful competitor to prevent insurers from taking as much advantage of policy holders and the public as they might under mixed reform.
Why can't private competitors work just as well?
Because insurers negotiate payment rates to doctors and hospitals, and since big insurers win better rates by virtue of their bargaining power, the biggest insurers therefore gain more and more market share, eliminating competition gradually until they have a near monopoly.
Note that establishing a Public Option still requires risk sharing (sharing the cost of very sick patients) among all insurers (including the public option insurer) in proportion to the number of insured. Correctly set up reinsurance would accomplish this risk sharing.
Below, I rank the forms of Public Option in terms of their overall quality, accounting for their cost, effectiveness, and their long-term effects on the quality of health care.
A popular alternative is Single Payer -- which could work well if specifically set up to allow, encourage and reward innovation by medical providers. While this is not currently on the table, a well-devised Single Payer system can be thought of as a fallback position.
Okay. To the rankings!
In the list below, "national" refers to a Public Option that is run as a single national organization; "State-based" refers to state based public options without any national public option.
"rates" refers to payment rates to providers such as doctors, hospitals, labs, clinics;
"negotiated" refers to the public plan establishing payment rates by negotiating with health care providers as private insurers do (these rates typically vary by region and locality);
"medicare+5%" refers to payment rates that are set to be equal to medicare rates plus 5% (Medicare rates vary by location already, but the effective costs also depend on the quantity of medical care use for a medical condition, which also varies by location);
"modified by states" refers to individual states having the option to themselves modify the rates in their own state by adding or subtracting a fixed % onto the nationally determined rates (which already have regional and local variations); such modifications create a need for:
"net cost balancing" -- if a state modifies a nationally-set provider rate structure in a "modified by state" option, it should be required to pay to or be refunded from the federal insurance premium subsidy program the difference in cost this modification creates on the total state-wide affordability subsidies (that subsidize individuals purchasing health insurance), to balance the fiscal effect on the federal affordability subsidies of it's provider rate modifications;
"opt-out" refers to a national plan set up in all states by default, to which a state may formally choose to opt out of;
"opt-in" refers to a national plan that states may join only by formally choosing to join.
Rank ---- Public Option Variation
1. National Plan, Medicare rates modified by states by a % level w/net cost balancing, with opt-out
2. National Plan, Medicare rates modified by states by a % level w/net cost balancing, with opt-in
3. National, nationally negotiated local rates, w/opt-out
4. National, nationally negotiated local rates, w/opt-in
5. National, state-set-or-negotiated rates w/net cost balancing, w/opt-out
6. National, state-set-or-negotiated rates w/net cost balancing, w/opt-in
7. State-based (states may also form regional groups), state-set rates, opt-in
8. National, Medicare+5%, with opt-out
9. National, Medicare+5%, with opt-in
10.... Trigger type variations of the above. (With an effort to make the Trigger real)
Clearly there are more permutations and combinations, but this is illustrative. If a generic opt-out plan is enacted, further modifications years later are likely, so this list may be relevant after this round of reform. The principles used to rank the qualities of the Public Options are that:
a) A National Plan is less likely to be corrupt or have as much revolving-door problems as state-based Plans. Laws, regulations, or plan administration are corrupt if and when they benefit for-profit groups or entities at the expense of the general citizenry.
b) Negotiated rates can have advantages in that the public insurer can make providers compete on price to meet the percentage of providers in an region it wants to have as plan providers, via a bidding process, which would tend to encourage value-oriented innovations (see the "Setting Prices" section in this post).
c) Opt-out allows states to choose and helps make the Public Option more legitimate (more a matter of local choice). Opt-in does the same, but is a more of a hurdle, since it requires a formal state effort to join the public plan. By increasing political legitimacy, opt-out and opt-in strengthen the Public Option initially and over time.
A Trigger is considered likely to be gamed by insurers over time to make it ineffective -- it might rarely or never be invoked, even if needed. One of the qualities that makes a Trigger so problematic is that the numerical (or worse, subjective) criteria by which it would be triggered are themselves subject to manipulation and massaging over time.
Many consider a Trigger to be a way to pretend to have a Public Option on the horizon, but in fact prevent a Public Option from occurring even in circumstances the original spirit of the legislation would have intended.
The alternative to all Public Options remains Comprehensive Insurance Reform -- itself no small thing -- which must have all of its many details working to prevent insurers from gaming the system, of which risk sharing (reinsurance based on patient condition) is most crucial. Those aiming at Comprehensive Insurance Reform should look to European nations where it is in effect.