An Examination of the Public Plan Option

The Disease Management Care Blog really liked this efficiently written Wall Street Journal piece on healthcare reform. While it didn't agree with everything, the inspiration led this humble blogger to review the main arguments in favor of the public plan, which are paraphrased below.

A public plan will keep the private insurers honest.

Given the prior Administration’s failures, it seems comforting to believe that a change in leadership means the Federal government’s track record in healthcare is destined for change. Yet, Veterans and American Indians have been disappointed by broken promises from both sides of the aisle for decades. Alternatively, if we agree that the D.C. mandarins are imperfect, it’s hard to understand how they are necessarily less so than many smaller and honorable not-for profit plans that remain largely unmentioned by the national media.

Private insurers have broken the public trust

While we can thank some incredibly tone-deaf plans for introducing the word ‘rescission’ into the popular vocabulary, buying insurance only when its needed and driving up premium rates for those of us who play by the rules has a more familiar word to describe it: fraud. The specter of coverage denials is also understandably frightening to healthcare consumers/voters, but the other side of the story is our collective sense of boundless entitlement and unwillingness to read and grasp the small print in a binding contract, especially when it's too good to be true. Yet somehow, we’ve been led to decide between these two extremes by abdicating a huge slice of our economy to a dysfunctional political club that relies on bombast, political expediency and unread legislation to govern.

Public insurance has a lower overhead, which means savings for consumers

The notion that government can do anything more efficiently strains credulity. What’s more, comparing Medicare and commercial insurance is like comparing the alternative universes of Nancy Pelosi and Sarah Palin. While commercial insurance has its own set of issues, the truth is that government-run programs like Medicare rely on an arcane thicket of Federal regulations subject to desultory retroactive IRS-like enforcement by the underfunded Office of the Inspector General, which is only spurred to action when the problem becomes ‘staggering.’ Add this 10% waste factor to CMS' considerable hidden overhead and the transfer of many expenses to the providers and the government doesn't look like such a good deal anymore.

The public option will control costs

The logic here is that the Federal government will be able to use its purchasing power to force a better deal for healthcare consumers. A better possibility is that the long-standing pattern of underpayment to hospitals and physicians by Medicare and Medicaid will spread to new sector of the healthcare market, leaving hospitals and doctors with nowhere else to go to recoup their costs. The end result will be price controls, which are economically indistinguishable from queues and rationing.

If you have insurance you like, you can keep it.

The insurance you like now won’t disappear overnight, but its demise in the coming years, thanks to inevitable crowd-out, hostile tax policies, clumsy regulations, Congressional meddling and unintended consequences will likely lead to a three tier system: underfunded Medicaid at the bottom, the one-size-fits-all middle public plan and the gold plated plans only available to our highest paid elites with the best benefits. Care to guess which one will be used by our political leaders?