At the Democratic presidential candidates’ debate July 31, a moderator asked about Washington state’s first-in-the-nation state “public option” health insurance plan. Noting that the premium for the plan is 5 percent below its private competition, the questioner asked, “Is 5 percent lower enough?”
The question betrayed the simplistic conception of what the increasingly popular “public option” should do: underprice the private plans, and drive them all out of business — saving consumers a boatload of money.
This idea really needs some thought, and then some serious adult explanation.
First, what would be a valid mission for a public option? And then, could a public option plan really fulfill that mission?
Well, perhaps if the private insurance market were dominated by a few firms and were uncompetitive, then a public plan could compete on the same level playing field and undercut the price. The private insurers would need to face up to the newly competitive market and cut their prices. Perhaps many antitrust economists, in principle, would be willing to consider such an effort.
But there are lots of problems.
First, it isn’t clear that the primary issue in health insurance is a virtual monopoly. There are enough insurers, both for-profit and non-profit, to limit prices on that score.
There are other problems, though. Most consumers are stuck with the plans that their employers choose, and so there is little effective demand for the kind of care individual consumers want. Incentives are distorted; consumers want all the care they can get, and providers want to submit all of the bills they can. And both insurance and health care itself are ungodly complicated, which further encourages all kinds of misbehavior by insurers and providers to fatten their incomes (which is not to say that all of them succumb).
So some might argue for a public option to attract more customers by setting high standards of behavior, thus forcing any bad-actor insurers, doctors and hospitals to clean up their acts. But that wouldn’t work. A public option that eschewed bad practices would have higher costs, not lower. (And it is worth noting that Medicare fraud by doctors and other providers is estimated at a chilling 10 percent of total costs; a public plan clearly doesn’t help there.)
No, the answer to bad insurer practices (example: “rescissions,” where some insurers double-checked sick enrollees’ original applications for trivial or irrelevant errors, and then canceled the coverage) is changing the law (such as “Obamacare” did) and enforcing it through regulation. We don’t need a public option for that.
But suppose a public option competes with private plans. How can there be a level playing field to make that competition really work?
Bottom-line answer: There can’t. How can government determine what to charge for administration and marketing of a health plan that is spread and buried in existing agencies? How can a public option be held financially accountable for fraud, like Medicare’s, that is inadequately policed and found only so long after the fact that it cannot be recovered? How can private firms go toe-to-toe with a government that can print its own money, or borrow at bargain-basement rates, so that it can underprice and never need to square its books?
This gets us to the central point: We are a compassionate country. At the end of the (fiscal) day, we will not be satisfied until all Americans receive the care they need (indeed, medical practitioners take an oath). We can subsidize it, we can “tax the rich” to pay for it, but ultimately the cost of health care is simply the cost of delivering that compassionate minimum level of care. The only way to reduce the total cost of health care is to find better ways to deliver that care.
Has Medicare done that? The answer is clearly no, else we wouldn’t need to have this debate. Will a public option do better? Why should the outcome be any different?
The Committee for Economic Development has recommended a far better way to drive improvement in health care while covering everyone. Ironically, it is an improved version of the health insurance system that members of Congress (and all other federal employees) use. Give individual choices among private health insurance plans that must compete for their business. If individual consumers are empowered to choose the plans they want, insurers and providers will search for better ways to deliver care. And if consumers save money by choosing less expensive plans, both insurers and providers will have every incentive to save money, rather than to run up the bills as they do today. Don’t create another public plan to add to the problems our existing public plans already have.
