The Public Option Option Play

BooMan argues that while GOP governors may talk tough, if the Democrats pass a public option health care plan with a way for states to opt out, they're not going to do it.

What would happen if, for ideological reasons, some state like South Carolina decided they simply didn't want to participate in the public option? They'd still get hammered by the increase in Medicaid eligibility, but they wouldn't get any subsidies, they wouldn't see any drop in the uninsured, and they wouldn't see any increase in taxable income.

Granted that it is a bit difficult to game out the shifting revenue streams in a bill as big as this one, and that we're talking about a proposal that has few details, but the opt-out compromise would probably not lead to any states actually opting out.

Something similar happened with the federal stimulus bill back in the spring. Govs. Mark Sanford, Rick Perry, and Sarah Palin all made noises about declining stimulus money because it would dictate to them how much unemployment insurance they had to pay out. But, in the end, no governors were willing to turn down federal money that would just be shifted to competing states.

Now, the immediate response from the FDL crew to this opt-out idea has been to raise concerns that the insurance industry will be be able to easily buy off state legislatures all across the country (even in Blue States), and get them to, 'either by referendum, legislature, or simply a gubernatorial decree,' opt-out of the public option. I don't dispute the financial clout of the insurance industry or the corruptibility of state legislators, but I see this as a rather knee-jerk reaction. I'd see a lot more validity in this critique if we were discussing an opt-in provision.

Because state legislators are already facing the necessity for brutal budgetary cuts (which definitely make them unpopular and threaten their careers) it would take quite a lot of persuading to get them to accept a huge bill from the federal government at the same time they are turning down a big wad of federal funding and killing off their taxable revenue stream.

Of course, the devil is in the details. The opt-out provision could come with even more disincentives than I've discussed here. Remember, the federal government forced states to raise the drinking age and establish uniform speed limits by threatening to withhold federal transportation dollars. Each state had the right to opt-out of that transportation funding but, in the end, none of them did.

I wouldn't reflexively oppose an opt-out compromise. I'd wait to see what it looks like before deciding.

From a purely economic standpoint, BooMan's got a point. States aren't going to turn down Federal money, legislatures will not let them do so because no state can run a budget deficit, and any governor who turns down health care money is going to get his/her ass served up on a platter at the next election.

And because of this little honey trap, I think it might be a useful tool to get conservatives to say "Well, it's your problem now" to the states and punt. Governors are talking about tenth amendment battles? Let them see how long they last turning down billions and still having to pay for health care.

They'll fold every time...as long as it's economically feasible.