The case for a public option for New York

New York finally has a Democratic trifecta controlling its state government. Last week’s elections swept Democrats into power in New York’s State Senate, months after grassroots voters picked off members of the chamber’s so-called “Independent Democratic Caucus” who had been blocking their own party from majority control for years. This gives Democrats control over New York’s Senate, Assembly, and governor’s mansion — a feat they’ve maintained for only three whole years since World War II.

Unified Democratic government ought to set the stage for major progressive reform in New York. And single-payer health care could be near the top of the progressive wish list. For four straight years, the Democratic majority in the Assembly has passed the New York Health Act, which would establish single-payer health care for all New Yorkers. The bill has been continually killed off by the Republican-controlled Senate, keeping it off of Gov. Andrew Cuomo’s desk (not to mention that the governor himself is at best lukewarm about the idea).

With the Republican-IDC stranglehold now broken in the Senate, Democrats finally have a seemingly clear pathway to get the New York Health Act through the legislature. But progressives in other states have had state-based single-payer plans within their political grasp, only to see the wheels nonetheless fall off in the end. New York progressives should be prepared with a more attainable, still progressive plan B: a state-run public option.

Will New York State cross the bridge to single-payer health care?

New York is currently home to over a million people who still lack health insurance — the fifth most of any state. The New York Health Act would replace existing public and private insurance coverage with a single comprehensive universal health care plan run by the state. This state-run plan would cover every New Yorker, and would cover the whole gamut of care, including mental health, hearing, dental, vision, and even long-term care (after a two-year phase-in period). It would eliminate provider networks, premiums, deductibles, and co-pays, and would be funded purely through new income and payroll taxes on individuals and employers.

A study by the RAND Corporation found that the New York Health Act would ultimately reduce total health care spending in the state by about 3 percent. Because single-payer plans shift today’s private health care spending onto the public balance sheet, premiums get swapped out for new taxes. RAND found that the state would need to more than double its tax intake to cover the costs of single-payer. RAND proposed a new tax scheme that would range from a new 6.2 percent payroll tax on those making under $27,500 to an 18.3 percent tax rate on those earning over $141,2000 (nearly tripling the current 6.45 percent state tax rate).

This, of course, is where state single-payer plans fall into trouble, and New York is no different. The problem with this tax proposal is that low-income New Yorkers already have Medicaid coverage for free. Though they’d have better coverage under New York Health, they’d have to pay higher taxes. It’s not obvious that the trade off would be either worth it or politically tenable.

Lessening the burden on low-earners would mean increasing taxes on the affluent by even more. That runs the risk of triggering flight from the state by high-earners into neighboring, comparably lower-taxed states, depriving New York of the revenue needed to keep single-payer sustainable.

Aside from shifting the tax burden, the other alternatives aren’t any more appealing. New York could fragment its single-payer program, such as by letting low-income New Yorkers stay on Medicaid with no new additional taxes. But that defeats the very purpose of a single common health care program. Or the legislature could weaken the program’s generosity, such as by adding in some cost-sharing or reducing benefits. But that’s just an accounting trick to shift costs back on to individuals — a tax increase by another name. Plus, comprehensive coverage isn’t just the humane thing to do, but could also generate stronger political support by leveling up everyone to coverage superior to anything available on today’s commercial market. Tinkering with comprehensive coverage would erode this potential wellspring of support.

Even if New York can get the financing right, it still faces steep regulatory hurdles from Washington. Implementing the New York Health Act would require the state to get a series of waivers to convert the state’s share of federal health care spending on Medicare, Medicaid, and the Affordable Care Act into a single fungible grant rolled into the new single-payer program. While such waiver requests may be tough but feasible under a friendly administration, they could be laughed out of the Trump administration’s politicized Health and Human Services department. New York Health’s tax incentives for employers to drop their own health care coverage in favor of the statewide single-payer plan could also face challenges under the federal Employee Retirement Income Security Act (known as “ERISA”), which prohibits states from regulating or impacting employer-provided health benefits.

There’s also the fact that New York would be leaving a large pot of money on the table in the form of the federal tax subsidy for employer-provided insurance. This coverage is tax-exempt by the IRS — a subsidy that costs the federal government more than $270 billion each year. There’s no clear mechanism for New York to recoup its share of this federal spending to funnel into single-payer.

These hurdles are not necessarily insurmountable. And given the moral importance of achieving universal coverage, they are certainly worth confronting. Single-payer advocates believe they have answers to each of them, and a plausible path forward.

But it’s a narrow path, and the wheels really could fall off during the political process. As State Senator Michael Gianaris, the chamber’s second-ranking Democrat, accurately recognized after the midterms, implementing single-payer care at the state level is “a very, very complicated issue.” Other deep-blue states like Vermont and California have flirted with their own single-payer plans, only to get cold feet in the face of the same hurdles that New York will butt up against.

That’s because statewide single-payer is inherently hard to pull off. Most states (including New York) are constitutionally required to have balanced budgets, meaning they cannot debt-finance any part of a new single-payer program. And the prospect of tax avoidance by the wealthy is a structural weakness: it’s much easier for rich people to move across state lines than national ones. There are many public policy ideas where the states are well-suited to serve as “laboratories of democracy.” But the federal government is simply much better suited to run a single-payer program than the states are. There’s a reason why Medicare is a federal program and not a state-run one.

That’s why the buoyant new progressives in the New York state legislature must be clear-eyed about the prospects for state-based single-payer health care. They should not burn political capital and progressive energy only to come up empty in the end with nothing to show for it. They need a plan B in case single-payer falls apart.

That plan B should be a state-run public option. A public option, of course, was nearly included in the Affordable Care Act, but was tossed overboard late in the game by centrist Senate Democrats. But there is nothing stopping New York (or any other state, for that matter) from creating a state-run health program to serve as a universal alternative to the private market. In fact, the ACA offers states the opportunity to get waivers to experiment with just that kind of health care approach.

If the New York Health Act is a state version of Medicare for All, then a public option would be New York’s try at Medicare for More. A good model for a state-based public option would be political scientist Jacob Hacker’s Medicare Part “E” (for “everyone who wants it”). Hacker’s plan would provide automatic guaranteed coverage for all Americans under a plan styled off of classic Medicare. If you’d rather enroll in an employer’s plan or another private offering, then godspeed, you’re free to opt out of Medicare Part E. But it would create a baseline of coverage that would always be there if you needed it. As Hacker puts it, “All Americans should be guaranteed good coverage under Medicare if they don’t receive it from their employer or Medicaid.”

The pros of a state-run public option are manifold. For one, it would impose far less strain on the state budget than a full-fledged single-payer program would. A public option would also avoid the political pitfalls that could arise from a single-payer scheme that requires transitioning everyone off of their current health plans and on to a new, unknown state-run one. A public option would boost voluntary state-run insurance coverage, while steering clear from accusations that those happy with their private coverage are being dragooned against their will into a single-payer scheme.

A public option would keep our exhausting, fragmented private industry-based insurance system intact, for better or worse. Single-payer proponents may well be disappointed if New York falls short of the Medicare for All vision. But they should also be wary: a bungled state attempt to enact single-payer could discredit the whole enterprise nationwide. Given all of the headwinds facing state-based single-payer, a public option is a safer, incremental yet progressive approach.

The public option could also well be the federal end-game for the Medicare-for-All movement, too. Political sensitivities around health care reform, and the fact that any future Democratic majority in the U.S. Senate will be dependent on holding several seats in purple and red states, mean that the legislative calculus could ultimately yield a public option as a potential compromise.

A federal public option would be stronger than anything even a state like New York could enact, particularly if the federal version wielded its buying power to pay hospitals and doctors at reduced rates close to what Medicare pays. But the hope for a federal public option could be advanced by reformers proving that the idea works on the state level.

New York should take the lead in this space. Other states have toyed with creating various types of public options, including by using Medicaid as vehicle for generally available public coverage. Nevada’s SprinkleCare plan to let anyone buy into Medicaid was vetoed by its Republican governor. And now, New Mexico is exploring the possibility of creating a Medicaid buy-in of its own.

Reformers in New York should pay close attention. We could be on the verge of a progressive renaissance in the state legislature. But progressives can’t afford to come up empty-handed if single-payer sputters. A public option for New York should be on deck, ready to get us closer to the goal of health care for all.

public interest attorney. policy thinker. writer. views are my own. bylines various places. @ Queens, NY.