The public plan debate marches on this week as we discuss whether or not states should be allowed to “opt-out” of the public health insurance plan. Allowing states to choose not to provide the public health insurance plan as an option in their markets has its virtues. It establishes the infrastructure necessary to create a public health insurance plan nationwide, but it also makes the decision ultimately a state judgment. This may be a safer way to go for those who worry about government expansion.

While we do not know the details of what kind of public plan states would be able to “opt-out” of, we suspect the center of gravity is closer to a level playing field approach, such as that proposed by Senator Schumer (where the plan would have to negotiate payment rates with providers) as opposed to the version supported by progressive Democrats in the House (where the plan would administer prices based at least in part on Medicare rates). If the level-playing field approach is in fact adopted, assertions that the plan would simply “underpay providers” rather than “driving real reforms that bring down costs and improve quality” are unfounded.

Also, let’s remember that all versions of the public plan under serious consideration require it to be self-financing. Taxpayers will not be subsidizing the public plan. Rather the main cost of reform will be providing low-income subsidies that can be used to purchase the policy of individual’s choice – public or private. Americans will get these subsidies whether or not their state chooses to offer them a choice of the public plan, and whether or not they choose the public plan if it is offered to them. Therefore, the argument that somehow residents of opt-out states will be footing the bill to finance a public plan they are unable to access is just wrong. The public plan will not be financed by taxpayers.

Repeated fears that the public option will pay less than market rates and somehow be subsidized by taxpayers deny what is being considered seriously by Congress and signal paranoia about the future. Critics are right to be vigilant. But we should not decide against doing something that could add real value in markets where insurer competition is lacking just because it might possibly be “turned” into a bad idea by a future Congress. If someone proposes to give the public option unfair advantages in the future, let’s debate it then, fairly and forthrightly.

Senator Reid’s announcement is not the end of the public health insurance plan debate. A weakness of the opt-out approach is that many of the states most likely to “opt-out” because of ideological reasons are the same states that you could argue need the public plan the most because of lack of competition and affordable policies.

Moving forward we should be on the look-out for new public plan ideas that possibly meld Schumer’s “level playing field” with Reid’s “opt-out,” Snowe’s “trigger,” and Carper’s state “opt-in.” Stay tuned.

The downsides associated with whether or not states opt in or out pales in comparison to the potential downsides associated with a public option that is not well thought out. Creating a government-run, price-controlled, Medicare-like public plan would be disastrous to the country regardless of who does or does not participate. Many years of experience with Medicare has shown that, despite across-the-board cuts in reimbursement, costs have continued to spiral out of control drawing the country closer to financial ruin.

Effective insurance reform should include mandating that individuals purchase insurance through employers, on the individual market, through cooperatives or through private insurance exchange models like the Federal Employees Health Benefit Program (FEHBP). The appropriate role for government would be to help people afford the insurance through sliding scale subsidies based on need. Employers could also choose to offer coverage or assist employees in purchasing coverage.

Private insurance must be reformed to eliminate pre-existing condition exclusions and other penalties patients incur from using their insurance as well as incentives to adopt and maintain healthy lifestyles.

This approach offers several benefits including allowing people to choose the type and amount of coverage they want.

Harry Reid stood up for America yesterday.

He put a public health insurance option in the Senate bill, the merged version of the two health care bills passed out of committee that will now go to the Senate floor for debate, amendments, and passage.

This is a huge victory. Putting the public health insurance option in the Senate bill that goes to the floor makes it much harder to remove later. Opponents will need 60 votes to amend the Senate bill, meaning a high bar will have to be cleared to take out or change the public health insurance option.

Why did Senator Reid do it? As he said:

I believe that a public option can achieve the goal of bringing meaningful reform to our broken system. It will protect consumers, keep insurers honest and ensure competition and that's why we intend to include it on the bill that will be submitted to the Senate for consideration.

For these reasons, the public option is what America wants. In poll after poll, in rally after rally, month after month, the American public has spoken. We want a public health insurance option to keep the insurance industry honest, to increase competition, and to give us somewhere to go if we don't want to be at the mercy of the private insurance industry any longer.

When the Washington Post - harbingers of cautious beltway conventional wisdom - has their polls showing 57% of Americans support a public health insurance option, you can be sure that this is a mainstream position. Senator Reid deserves our thanks today for leading America forward. The fight is far from over, and to be sure, there is plenty in the Senate bill that needs to be fixed. We need:

• To make sure health care is truly affordable to everyone
• Ensure employers are responsible for helping to provide good health benefits to their employees
• Fairly finance reform rather than taxing higher-cost plans

However, Senator Reid stood up for America and he should be encouraged to keep fighting.

Texas Governor Rick Perry last night made some important comments on Fox Business Network about this. Essentially, "opt out" is not a real "opt out", unless you enjoy taxing citizens and businesses in your state to pay for a program that only operates in other states. I echo the sentiments of Mike Cannon below.

Further, consider the implications of punting this to the states. Right now a cabal of far leftist groups have vowed to spend nearly $100 million pushing a public option. On the federal level, this won't go that far, because they have powerful opponents (like the business community) who are organized and prepared to stand up to them and broadcast the truth. On the state level, that money would go a lot further - so don't kid yourself, as soon as an "opt-out" government-run plan was passed, these groups would move their campaigns to the state level.

And if you want to debate whether it's easier to pass bad health care laws on the state level, look at the issue of state coverage mandates - 1000's have been passed on the state level. At the behest of these and other activist groups, many states have literally destroyed their insurance markets. And on the federal level? Opposition from the business community and our allies has prevented all but 5, some (or all) of which we worked to make palatable before eventually endorsing and helping to move forward.

Further, Reid said at his (why was he alone?) press conference that states would "have until 2014 to opt out". What does that mean? Does a state governor make the call? Does a state have to amend its state constitution? Hold a referendum? It might end up being very hard to opt-out even if a state decides they can withstand all the political pressures and attacks and don't mind spending money on a program for other states.

At the end of the day, an "opt-out" government-run plan is unlikely to dissuade many opponents, may alienate some proponents, and will surely still be viewed as the next entitlement crisis to hit all of our pocketbooks in the form of higher spending, higher taxes, and more debt.

A new government-run plan would underpay doctors and hospitals rather than driving real reforms that bring down costs and improve quality. The American people want health care reform that will reduce costs and this plan doesn’t do that.

The divisive debate about a government-run plan is a roadblock to reform. It’s time we focus instead on broad-based reforms that will ensure the affordability and sustainability of our health care system

President Barack Obama and his congressional allies want to create yet another government-run health insurance program (call it Fannie Med) to cover yet another segment of the American public (the non-elderly non-poor).

The whole idea that Fannie Med would be an “option” is a ruse.

Like the three “public options” we’ve already got – Medicare, Medicaid, and the State Children’s Health Insurance Program – Fannie Med would drag down the quality of care for publicly and privately insured patients alike. Yet despite offering an inferior product, Fannie Med would still drive private insurers out of business because it would exploit implicit and explicit government subsidies. Pretty soon, Fannie Med will be the only game in town – just ask its architect, Jacob Hacker.

Now the question before us is, “Should we allow states to opt out of Fannie Med?” It seems a good idea: if Fannie Med turns out to be a nightmare, states could avoid it.

But the state opt-out proposal is a ruse within a ruse.

Taxpayers in every state will have to subsidize Fannie Med, either implicitly or explicitly. What state official will say, “I don’t care if my constituents are subsidizing Fannie Med, I’m not going to let my constituents get their money back”? State officials are obsessed with maximizing their share of federal dollars. Voters will crucify officials who opt out. Fannie Med supporters know that. They’re counting on it.

A state opt-out provision does not make Fannie Med any more moderate. It is not a concession. It is merely the latest entreaty from the Spider to the Fly.

Updated at 10:10 a.m. on Oct. 26.

Advocates for a public health-care plan continue to look for a way to give political cover to moderates while advancing their goal of implementing a government-run health-care system. Their latest proposal is to create a federally controlled public plan that states can opt out of if they so choose.

The public plan is pitched as if it would simply encourage competition and provide another choice for consumers. But a government-run plan is not just another plan, offering just another choice. It is designed to undercut private insurance.

A government-run plan is dangerous for three reasons: One, it would be cheaper for employers to stop offering private insurance and funnel their employees into the government-run plan. Employers, not employees, would get to make that choice. Two, the government-run plan would use the coercive force of government to dictate the prices that could be charged by others — by doctors, nurses, and hospitals — in a way that private entities cannot. Three, the government-run plan would be subsidized by American taxpayers, while private plans are not.

Let no one be deceived into thinking that Congress would not subsidize the government-run plan. Once in place, Congress would favor it with all kinds of innovative provisions designed to “help” participants “make the right choice.” HR 3200, for example, would offer low-income subsidies — but only for those who choose the government-run plan.

Financial subsidies for a public plan, whether direct or indirect, would be financed by taxpayers — by taxpayers in all fifty states. States would not be allowed to opt out of having their residents pay these federal taxes. They would only be allowed to opt out of receiving their share of the federal subsidies.

Imagine state legislators being faced with the proposition of denying residents of their state access to a subsidized public plan, knowing their residents would be still be required to pay the taxes used to pay for it. What state legislator would vote to do that?

The state “opt-in” is a transparently false choice. It is just another gimmick to try to find votes for an unwise policy that would increase the federal government’s control over health care.

Updated at 9:51 a.m. on Oct. 26.

State opt out is appealing to some because political cultures vary across states, thus potentially permitting compromise on what is mostly an ideological issue. What the implications are beyond ideology depends heavily on what type of public option we are talking about. If it is the version where the public plan pays hospitals and physicians at Medicare rates, an extensive pattern of distortions could result. How Medicare rates compare with those negotiated by private insurers varies to a very large degree across geographic areas and also within a geographic area. One result could be that those states with the highest rates relative to Medicare will opt out in response to pressure from providers, substantially diminishing the exercise of purchasing power that some advocates of public plans place a priority on. This could diminish the CBO score for the public option. Distortions could come in populous areas that are divided by state boundaries. For example, if Virginia opted out and D.C. had a public plan, hospitals would get paid much more for treating Virginia residents than residents of the District enrolled in the public plan. This could have an effect on where hospitals build new facilities.

If, on the other hand, the public plan negotiates rates with providers, then having state opt out would not have much impact. I say this because I believe that such a public plan would not be able to negotiate lower rates than private insurers. The plan would lack advantages of incumbency of the leading private plans in an area and would be subject to pressures from Congress about including all providers, even those with high rates in relation to the quality of the services they provide. Such a public plan is unlikely to have much impact on costs.

One thing I find puzzling about the debate about public plans is how little attention has been given to governance of the public plan. Perhaps many are assuming that such a plan would be run by professionals devoted to serving the public. But recent experience with Medicare is not encouraging. Congress appears to be interfering with CMS decision making at an increasing rate. The latest issue, which strikes me as the most serious to date, involves attempts to block CMS from following through with its proposed rule for the physician fee schedule based on a new practice expense survey conducted by the AMA. Specialties likely to lose from these changes, are much better funded than those likely to gain, such as primary care. Creation of an IMAC or MedPAC with power, assuming that it is given authority over Medicare provider payment, seems essential to the integrity of the Medicare program. With a public plan basing its payment rates on Medicare, the integrity of Medicare payment rates would become even more important.