RSS 2.0 Follow Us!

Related Posts

Robert J. Samuelson on the Public Plan Mirage

John on October 26, 2009 at 2:45 pm

Today’s column by business writer Robert J. Samuelson goes a long way toward correcting some of the real myths about the Democrats public option:

In the health-care debate, the “public plan” is all things to all people. For supporters, it would discipline greedy private insurers and make health-care coverage affordable. For detractors, it’s a way station on the path to a single-payer insurance system of government-run health care. In reality, the public plan, also known as the public option, is mostly an exercise in political avoidance: It pretends to control costs and improve access to quality care when it doesn’t.

Samuelson then proceeds to take apart some of the Democratic arguments one by one. On the supposed benefits of competition and pooling, he writes:

The public plan’s low costs would be artificial. Its main advantage would be the congressionally mandated requirement that hospitals and doctors be reimbursed at rates at or near Medicare’s. These are as much as 30 percent lower than rates paid by private insurers, says the health-care consulting firm Lewin Group. With such savings, the public plan could charge much lower premiums and attract lots of customers. But health costs wouldn’t subside; hospitals and doctors would offset the public plan’s artificially low reimbursements by raising fees to private insurers, as already occurs with Medicare. Premiums would increase because private insurers must cover costs to survive.

As for administrative expenses, any advantage for the public plan is exaggerated, say critics. Part of the gap between private insurers and Medicare is statistical illusion: Because Medicare recipients have higher average health expenses ($10,003 in 2007) than the under-65 population ($3,946), its administrative costs are a smaller share of total spending. The public plan, with younger members, wouldn’t enjoy this advantage.

Likewise, Medicare has low marketing costs because it’s a monopoly. But a non-monopoly public plan would have to sell itself and would incur higher marketing costs. Private insurers’ profits (included in administrative costs) also explain some of Medicare’s cost advantage. But profits represent only 3 percent of the insurance industry’s revenue. Moreover, accounting comparisons are misleading when they don’t include the cost of Medicare’s government-supplied investment capital. A public plan would also need investment capital. And suppose the public plan suffers losses. Congress would assuredly bail it out.

Hence his devestating conclusion:

The promise of the public plan is a mirage. Its political brilliance is to use free-market rhetoric (more “choice” and “competition”) to expand government power. But why would a plan tied to Medicare control health spending, when Medicare hasn’t? From 1970 to 2007, Medicare spending per beneficiary rose 9.2 percent annually compared to the 10.4 percent of private insurers — and the small difference partly reflects cost shifting.

At this point you’re probably waiting for Samuelson to turn around and step on critics (as obliquely suggested in his first paragraph). That doesn’t happen. On the contrary, Samuelson identifies the most devestating argument against the public option:

[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? In one study that assumed widespread eligibility, the Lewin Group estimated that 103 million people — half the number with private insurance — would switch to the public plan. Private insurance might become a specialty product

In other words, Rep. Schakowsky was telling the truth:

YouTube Preview Image

He ends with this simple statement which effectively cuts through the Democratic media fog on the issue:

But if that’s the agenda, why not debate it directly? It’s not insurers that cause high health costs; they’re simply the middlemen. It’s the fragmented delivery system and open-ended reimbursement. Would strict regulation of doctors, hospitals and patients under a single-payer system provide control? Or would genuine competition among health plans over price and quality work better?

Answer: They won’t come out and say what they really want (with the exception of Barney Frank who deserves kudos for honesty), because they know the American people won’t support it if they know what it was really meant to accomplish, i.e. Canadian style single-payer. In short, they’ve chosen to lie.

Post to Twitter

Category: Health & Education |

Sorry, the comment form is closed at this time.