Public option Notes for November 18

Main points

We talked about the rationale for the public option and some of its pitfalls.

The most interesting new research introduced concerned Medicare. Hacker referred to studies that claimed Medicare has both limited the growth of costs and that it plays a leading role in improving quality.

Objections from the right

One objection is that the public option is a precursor to a single payer system. Roughly, it would not operate as a true insurance plan that has to pay its own way with premiums but would be subsidized, either explicitly or implicitly, by the government. Once launched, it would drive private insurance plans out of business.

Then, the story goes, the government would use its purchasing power to pay less for medical technology, crushing research and development of future technologies.

We’re going to talk about this more in a few weeks. For the moment, let me record the following from today’s discussion.

First, we noted that an implication of this argument is that the US doesn’t have an inefficient system. We pay more for health care than others do, but it’s going into technology that will improve our health. So what looks like waste is actually intelligent, long-term investments in research and technology.

Second, Jennifer and I asked why the US puts up with allowing other countries to free ride in this way. If the money for research and development comes from excessive spending in the US, shouldn’t we look for ways to get other countries to do more to pay their share?

Objections from the left

The objection from the left is that the public option will be too weak. For instance, if the public insurance plan is required to take everyone and private insurance plans are not, then there is a huge problem of adverse selection: all the people with the greatest risks will flock to the public plan.

The solution is to regulate private insurance plans, making them take everyone too and, perhaps, transferring money from plans that have less risky subscribers to those that have the more risky subscribers. But those regulations will not be easy to write or enforce. And you can count on Congress leaving private insurance companies with significant advantages.

It isn’t obvious that this would be a terrible result in itself. We could, theoretically, subsidize the public plan with tax money even if it covered only the riskiest people in the population. Instead of paying for their care through insurance premiums, we would be doing it through the tax system. Either way, everyone would be covered.

That said, political reality would almost certainly be different. The government would not be willing to give an adequate subsidy to a public plan that had only the riskiest patients. So this would almost certainly not be an acceptable outcome for the public plan.

This page was written by Michael Green for PPE Senior Seminar, PPE 190, Fall 2009. It was posted November 18, 2009.
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