26 July, 2009

The Public Option Conspiracy

This morning on the McLaughlin Group, Rich Lowry and Monica Crowley teamed up in claiming that liberal lawmakers crafted the current health care reform bill with the goal in mind of ultimately eliminating private health insurers in the U.S. Apparently, since leftists can't openly force a socialist bill through Congress, they have found a way to sneak in a trojan horse that appears to promote competition, but once implemented, will actually reak socialist havoc on innocent, freedom-loving Americans by taking away their ability to choose a provider. This is just another case of neo-cons trying to shift the conversation from the actual effects of the bill, if passed, to the supposedly sinister intentions of Obama and congressional Democrats.

What should be debated is whether or not the bill would have such an effect. It seems to me that the purpose of the public option is to provide a "moral" contender to private insurers, i.e., one which provides a certain level of service needed by many low-income Americans, which is usually not available due to competitive pressures. For instance, as Yglesias points out, the ability to see a doctor on the weekends. Supposedly, one could operate a profitable business that offers health insurance that, along with the usual services, allows one to see a doctor on the weekend - but since actual insurers can collectively get away without allowing for this, they do - even though it isn't "the right thing to do."

The problem is how will the Feds know how far they can go (in services and pricing) before they are providing an alternative that private insurers cannot compete with?

1 comment:

spencer said...

I think that their point can be salvaged. The whole point of the public option is to undercut private insurers by providing the same services for a lower price or providing more services for the same price. If the public option doesn't do this, it will have little effect--without a lower price, there will be little reason to switch from private insurance to the public plan.

So the question becomes how the public plan will achieve these price cuts (or equivalently, service increases) and how private insurers will respond. One option is that the public plan may be partially funded by taxpayer dollars and partially funded by insurance premiums. In this case, private insurers cannot compete unless the same subsidy is extended to them, which of course it won't be. So it's not a stretch to believe that a subsidized public option would put at least some (and possible many) private insurers out of business.

Another possibility is that the government will be able to provide cheaper care through bargaining with health care providers. Presumably, the government could use the combined demand of the public plan, Medicare, and Medicaid to win big concessions from providers. Since no private insurer would be as large, they wouldn't be able to compete in this case either.

A third possibility is that the public plan reduces administrative costs. It costs insurers a lot of money to figure out who is more or less risky. The government could avoid this by charging risky and less risky people the same price for the public plan. Then they'd run into a problem of adverse selection. Sicker people would sign up for the plan, raising costs, and raising the premium until healthy people returned to private insurers. The only way to stop such a spiral would be subsidies--but as discussed above, private insurers could not compete with this. In order to avoid adverse selection and subsidies, the public plan would have to screen people in the same way that private plans do. There are no cost savings here after all.

Given these arguments, I'm not at all convinced that the public plan would both provide lower-priced insurance and allow private insurers to stay in business.

There are some good arguments for single-payer health care. Maybe, politically, the public plan is the easiest way of getting everyone into a single-payer system. But this is exactly what Lowry and Crowley fear!