After many weeks of pessimism regarding the prospects of health reform, I’m suddenly feeling strangely optimistic. My pessimism rested on a few fronts:

(1) The president is right to suggest that we need a healthcare overhaul, yet he’s been, in my view, very misleading regarding the likely consequences of his proposed health insurance reforms.

(2) Republicans have been right to oppose many of the president’s proposals, yet their opposition has rested on a spirited defense of the status quo, including a defense of Medicare FFS, possibly the most counterproductive aspect of healthcare as we know it.

So if the president “won,” we’d have an enormous new entitlement likely to grow more expensive over time. And if the Republicans “won,” future conservative policymakers would be sharply constrained in their ability to impose spending restraint.

Now, however, I’m suddenly convinced that there might be room for a constructive reform proposal, one that could be embraced by congressional conservatives and moderates.

Basically, the public option is a solution to a problem we’re set to create — that problem is that, as a number of liberal analysts have pointed out, a combination of an insurance mandate, reforms designed to eliminate or minimize adverse selection, and low-income subsidies is heaven for private insurers: there is nothing there to prevent them from charging ever-higher premiums. Because we’re not reforming the delivery system, the real driver of cost growth, we might actually see accelerating cost growth as a result of these reforms, which will eat into wage growth that has already been battered by the economic downturn.

The public option is, as we’ve discussed, designed to “discipline” private insurers. Yet this is a mirage as long as we don’t reform the delivery system: the public option will be “strongest” if it is allowed to impose Medicare reimbursement rates or close, which means that we’ll see cost-shifting as we did during the late 1990s. To oversimplify, the period from 1989 to 1996 saw a slowing rate of growth in health insurance premiums. Part of this derived from a shift towards managed care plans on the part of employers and private insurers. But part of it derived from the fact that Medicare was relatively generous during this period. After the Balanced Budget Act of 1997, however, Medicare slowed the rate of growth in its reimbursements to hospitals. And so hospitals demanded more from private insurers. I have no religious opposition to the fact that Medicare reimburses hospitals at low rates — that is one of the benefits of scale. I do, however, have a problem with the fact that they reimburse hospitals at low rates without leveraging their market power to make the system more efficient; instead, Medicare effectively makes our health system less efficient.

A number of centrists, including some of my colleagues at the New America Foundation, want a weaker version of the public option, one that will serve as a non-profit benchmark. Whatever the virtues of this proposal, I don’t think it’s going to generate the necessary system-wide reforms.

Among liberals, the consensus view is that we should have coverage expansion now and reform of the delivery system later, when our hand is forced by spiraling costs. This strikes me as a fairly cynical view, and one that might backfire. We’re already facing mammoth deficits for a decade or more: if not now, when?

The good news is that a handful of congressional conservatives, like Senator Bob Corker, seem willing to force changes that will get us out of this impasse.