The Public Option Shibboleth, or Act 2 of: HealthCare: A Diatribe

blogpost by Ogenec

Dear Readers, between DJ Hero and other pursuits, I have been delinquent in writing this piece. My bad.  And I’m kinda cheating. I’d promised that Part 2 of my diatribe would address the Baucus bill, while Part 3 would address the public option. However, in light of the passage of time and developments under way in Congress, it makes sense to flip that around. Accordingly, I’ll talk about the public option now, and in Part III whatever bill emerges from conference.
So, here we go:

“The Defining Moment”, today’s OpEd by Paul Krugman is a good place to start. GeoT sent it to me today, with the comment that Krugman was talking to me and the rest of the public option holdouts: time to be reasonable, in otherwords. GeoT was just kidding; he knows I’m the epitome of reasonableness 🙂 But his point is well-taken; in many ways, it’s time to put up or shut up. Instead of being negative about the public option, perhaps we should be more constructive and say what we affirmatively are for, rather than against.

I will do that in a bit, but let me clear up a misconception. I rail against a public option not because I’m opposed to the concept, but because I think proponents both overstate and understate its impact. The real issue is health care reform, which the public option in and of itself does not address.

Let me demonstrate what I mean.  Most proponents claim that the public option will (a) provide competition to insurers, which will in turn (b) help to hold health care costs down, all without (c) morphing into a single-payer plan.  I think that’s pure bunk.  As presently envisaged, the public option will not do (a) or (b); it’s not sufficiently robust.  If, however, you do make it sufficiently robust to fix (a) or (b), the public option will lead, ineluctably, to a single-payer system.

Let’s take these one at a time.  First, the notion that the public option will provide competition.   Not under the current plan, it won’t:  The scale of the program is too small.  As presently constituted, the CBO projects that only 6 million people would enroll in the public plan.  How does such a limited plan introduce competition?  How does it break away from the employer-based model?  Answer: it doesn’t.

Well, then, what about holding health care costs down?  That part is a double-fail.  No real competition means no downward pressure on health care costs.  But it’s even worse than that — CBO projects that premiums for the public plan will exceed what folks in private plans are paying:

[A] public plan paying negotiated rates would attract a broad network of providers but would typically have premiums that are somewhat higher than the average premiums for the private plans in the exchanges. The rates the public plan pays to providers would, on average, probably be comparable to the rates paid by private insurers participating in the exchanges. The public plan would have lower administrative costs than those private plans but would probably engage in less management of utilization by its enrollees and attract a less healthy pool of enrollees.

So let’s recap.  The public option now under consideration would not provide sufficient competition to insurers; health care costs would not go down; and premiums for those in the public plan would go up.  What’s not to like?  This kind of a public option would not present the threat identified in (c) above.  It’s so neutered as to foreclose any risk that it is a stalking horse for a single-payer system.

Most progressives agree with this assessment.  And, say they, that’s precisely the problem: we need the “robust” option.  One that is open to everyone ab initio (or shortly after inception), and that pegs reimbursement to Medicare, or Medicare plus 5%.   Here’s the problem with that approach.  It busts the budget, imposes negative externalities on insureds in private plans and the uninsured, all of which ensure a slow death for private insurance.  It busts the budget because as the number of people covered under the public option increases, so does the cost.  A greater expansion takes the bill well over the $900 billion threshold Obama has set.  And even that threshold is suspect, as both the House and Senate versions of the plan rely on Medicare-related savings that are unlikely to be realized.   As proof, just recall the recent debates over the COLA adjustment and staving off the long-planned cuts in Medicare reimbursement rates for doctors.  The likelihood that Congress will display fortitude it heretofore has never possessed to reduce Medicare reimbursements when push comes to shove is virtually nil.

Meanwhile, much has been made of the savings that will accrue to the government (and, hence, the taxpayers) if reimbursement rates are tied to Medicare.  But very few have asked the question, from whom do those savings come?  And the answer is clear: from the same people who unwittingly subsidize Medicare — those in private insurance and the uninsured. That then leads to the next problem — single-payer through the backdoor.   Fred Hiatt explains these inter-related problems quite cogently:

[I]f, as seems likeliest — and as House legislation mandates — the plan uses government power to demand lower prices from hospitals and drug companies, those providers may lower quality or seek to make up the difference from private payers. Private companies would have to raise their rates, so more people would choose the public plan, so private rates would rise further — and we could end up with only the public option and no competition at all. Single-payer national health insurance may be the best outcome, but we should get there after an honest debate, not through the back door.

Robert Samuelson also makes the same point: 

[A] favored public plan would probably doom today’s private insurance. Although some congressional proposals limit enrollment eligibility in the public plan, pressures to liberalize would be overwhelming. Why should only some under-65 Americans enjoy lower premiums? … Private insurance might become a specialty product. …Many would say: Whoopee! Get rid of the sinister insurers. Bring on a single-payer system. But if that’s the agenda, why not debate it directly?

So there’s the nub of the matter.  Either the public option will be so limited as to be neutered and of no significance in providing competition to health insurers.  Or it will be so robust as to kill off private insurance.  The economic equivalent of the Northern snakehead fish, and we get single-payer by default.  But if the latter outcome is what we prefer, let’s have the guts to say so openly and directly.  Let’s not do by indirection what we suspect we can’t accomplish with an honest and frank debate.

Click for details

This is why I’ve been cool to the idea of a public option.   The public option, in and of itself, does not address the real problem – the escalation in the cost of healthcare delivery.  Even if you stripped out the administrative inefficiency of the balkanized health insurance system, you are still left with unsustainable increases in healthcare costs.  And the public option does nothing to address that.  Which is the reason Medicare – touted as the model for the public option – is itself going bankrupt.  To my mind, the underlying issue of increasing costs is far more important.  So the focus on public option rather misses the point: it is the equivalent of addressing the symptom and not the disease.  I want a system that addresses the underlying issues of escalating health-care costs.  I think Wyden-Bennett does; I think the Baucus bill did; and I think Dole-Daschle does as well.  In Part 3, I will expound more fulsomely on this, and analyze the merged bill from this perspective.  I know you can’t wait 🙂

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17 Comments

Filed under Democrats, Economy, Health, Republicans, Uncategorized

17 responses to “The Public Option Shibboleth, or Act 2 of: HealthCare: A Diatribe

  1. NMP

    Great analysis!

    • ogenec

      Thanks! Where’ve you been? Good to see you here.

      • NMP

        Looking for a new blog fam. Glad to see you doing your own thing! If you recall, I tried to poach you from Taylor Marsh to post at Jack & Jill Politics. I’ve since stop frequenting that site (along with a quite a few other regulars). Couldn’t take the daily rants from Rikyrah about the public option that were absent any thought, reason or facts. So, I’m a JJP refugee looking for a new home. It would be great if your analysis was guest posted there.

    • audiegrl

      Hey NMP

      I remember you! Nice to see you again 🙂

      • ogenec

        NMP, we would be honored if you would consider us your new blog fam. We’re new to this, but it’s really starting to take shape. We’re adding contributors by the day, and are intent on having a wide array of viewpoints and interests. It won’t be all work and no play. Check it out, and let us know if you’re feeling it.

        I’ll definitely check into cross-posting at JJP.

  2. betsmeier

    Good to see you NMP. It’s nice that you have joined us. 🙂 Please stay.

  3. betsmeier

    Great article Ogenec. You really did a great job.

  4. Ogenec:

    If Pelosi says “35 million of the now uninsured will get insurance” under the house plan how does that jibe with your count of only 5 million being covered by the public option?

    • ogenec

      GeoT, she’s talking about the entire plan, of which the public option is just a component. Most will be covered under the insurance exchange provisions of the bill. The six million number comes from CBO’s scoring of the bill (I linked to the CBO letter in the post). So the two things are not contradictory.

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