Ezra Klein appeared on MSNBC’s Countdown and repeated his view that if progressive Democrats were forced to give up on what is now a watered down public option, they should get worthwhile features that achieve the public option’s intended goals. From Ezra’s blog:

Having something called a public option is not, in the end analysis, as important as achieving the goals of the public option, and at this point, the policy itself is getting so watered down that it might be worth attempting to achieve its goals in a more straightforward fashion.

I don’t support confusing means and ends either, but what exactly would constitute an acceptable substitute for achieving what you hoped the public option would achieve? Klein asserts that the goals were affordability and choice. Hence possible substitutes to trade for would be:

. . . a few hundred billion more in subsidies, a national exchange that’s open to larger businesses, and tighter rating rules governing how much insurers can discriminate against people of different ages and demographic characteristics. The first would do more than a really weak public option to increase affordability, the second would do more to increase choice, and the third would just be a good idea.

By themselves, getting higher subsidies and even a larger exchange would make the bills better, and they should be pursued regardless. But giving up the public option would increase budget costs, since even the weakened PO seems to push prices lower and save money on subsidies. If we also increased subsidies and allowed more people into the exchange, and thus made more people eligible for subsidies, that would also increase budget costs. So Klein is suggesting a "trade" that on both ends would increase the budget costs.

But these features aren’t even effective substitutes for a viable public option. In fact, they’re virtually useless in achieving the public option’s central purposes.

One problem is that while billions more in subsidies would make the insurance more affordable to enrollees — and hence, make the individual mandates more defensible — it would essentially leave the underlying insurance premiums and the provider costs they cover unchecked. With no public option, there would be less competitive pressure on further cost increases.

So the effect would be to raise federal budget costs but not lower the nation’s health care or insurance costs. Better affordability may be needed, but that’s a poor way to achieve it and a bad trade.

Similarly, expanding access to the exchange can be a good idea, but that’s only if the insurance offered in the exchange becomes efficient at lowering insurance rates and putting downward pressure on provider costs. But expanding the exchange in the absence of a PO’s cost-cutting attributes simply means that more people would be allowed to choose from higher-cost insurance, while the federal subsidy costs would rise dramatically with the expanded access. That’s a recipe for breaking the budget.

What’s missing from the analysis is an appreciation for the cost-cutting efficiencies originally contemplated for a strong (Medicare-like) public option. A national public plan linked to Medicare would have the market power both to pressure private insurers and to confront those providers who exercise market power to keep raising provider fees and insurance rates.

When the Urban Institute examined "Is the Public Plan Option a Necessary Part of Health Reform," it emphasized the non-competitive nature of today’s insurance and provider markets. Those markets are highly concentrated, and the text-book theories of efficient competition do not apply. It then stressed the public option’s ability to acquire and use countervailing market power, both to compete effectively with other insurers in an otherwise concentrated insurance market, and to negotiate effectively with a provider industry that itself has become highly concentrated and non-competitive.

This rationale for a strong public option is being forgotten in the Senate discussion of alternatives. If we really want to make health care/insurance more "affordable" and give people real "choices," we have to do more than increase federal subsidies and expand the exchange. We have to have mechanisms to counteract existing market concentration and market power and drive down costs. A strong public option with market power could do that, but Klein’s substitutes wouldn’t. To get there, we need to substantially strengthen the public option in the bills, not trade it away for faux substitutes, whatever their other merits.

Bargaining away the public option for higher subsidies and a larger exchange isn’t a good trade; it’s a bad one. And it’s confusing the major reasons why, in the absence of Medicare for all/single payer, we needed a strong public plan in the first place.

More:
See also, Urban Institute’s recent paper, "Getting to a Public Option that Contains Costs: Negotiations, Opt-Outs and Triggers" which furthers these arguments while suggesting that if the public option were triggered, the trigger should be more likely to occur and automatic and the public option should be the strong, Medicare-based national plan described in the earlier paper.