Abstract: A politically realistic public option would have significant impacts on America’s future fiscal condition. These impacts would be exacerbated by the kinds of economic shocks, such as recessions, that our country has seen on a fairly regular basis. In this paper, we focus on economic shocks that could directly affect the costs of a politically realistic public option or indirectly raise costs due to likely congressional responses. We consider three stylized examples. The first is a freeze on public option premiums in response to a recession. The second is a provision that would grant premium relief for the unemployed both during normal economic times and during recessions. The final example investigates the cost of the politically realistic public option if health care costs grow faster than projected, leading to higher per-enrollee subsidies. In each case, we find that a public option is likely to evolve from a deficit-neutral program into an expensive entitlement program that will increase the federal debt or require higher taxes. Ultimately, the inherent design of the public option makes it vulnerable to the same legislative expansions that nearly all federal entitlement programs have experienced. Our analysis casts doubt on the idea that future Congresses will have the political fortitude to maintain the promise of a budget-neutral public option, particularly amidst the shocks that are sure to impact America’s economy in the coming decades.
Read the paper: Economic Shocks and Probable Expansions to a Public Option.pdf
