It must be tough being a Republican wading into the health care debate. How are you supposed to know which of your ideological guideposts to navigate by? On the one hand, your whole life you’ve been convinced that government can’t do anything right – that everything government does is bloated, inefficient, ineffective, and wasteful. On the other hand, you just know in your heart of hearts that there’s scarcely a problem that private markets can’t handle, if they are truly allowed to roam like the grass-fed, free-range bison that we would all subsist off of if Washington hadn’t screwed it all up.
But here in the midst of the health care debate – and seriously, can you ever imagine a time when we’ll be talking about anything else? – the ideologically pure Republican finds himself in a bad quandary.
The Public Plan. The second word is “Public.” Let’s go burn down a town hall meeting. And we’re not too wild about the word “Plan” either.
If the machinery of public process were ever about anything other than partisan warfare, for just a day, wouldn’t we see that the rationale behind The Public Plan seems to be exactly the coin of compromise in which we’d all rather be trading? As far as I understand it – which maybe I don’t – here’s the basic idea:
• Make a health insurance company.
• Have the government run it like Medicare (which is one of the best-run insurance companies in the country).
• Let people stick with their existing policy, but give them the choice to switch to The Public Plan if they so choose.
Insurance companies hate it. They – some of the most fantastically profitable private companies in the country – say that they can’t compete against a low-cost government-run new market entrant. But here’s where the ground begins to give way underfoot for the ideologically pure Republican. If you don’t think government can ever do anything right, then the insurance companies are wrong – they can compete against the government, because the public sector won’t be able to provide what people want, and even if it could, it wouldn’t be at a price that beats the private sector. But if the insurance companies are right, and they can’t compete with The Public Plan, well then I’m giving that one of my all time biggest WTFs. What ideology is it that tells any elected official to protect insurance companies from a cheaper plan to which people choose to switch?
There are two answers, as far as I can tell. First, and obviously true and part of the answer, is that it’s the ideology of getting campaign contributions from rich people who require government intervention to stay rich. Second, though, maybe some people think that the end of that story is that we are again left without competition and choice – that some people would rather not be on Any Public Plan, but that they would have no choice after most or all insurance companies are driven out of business (again, by a government insurer that offers quality care for less). In that sense, those who cry foul when President Obama says “if you like the insurance you have, you can keep it” may be right. You may have to switch to a plan that is cheaper and better, run by your choice of the government or a new insurance company that can, through American-style creative destruction and innovation, compete with a cost-effective, science-based, market-driven alternative, probably by being cost-effective, science-based, and market-driven itself.
The Public Plan is such a sensible compromise. It essentially says, OK, let’s not be deterministic about whether The Public Plan is right for none or a few or most or all Americans, let’s just dip the public toe into the marketplace, and let’s let the market figure it out.
Shouldn’t this appeal to the ideologically pure Republican? Perhaps co-ops could do this just as well. Hopefully we’ll get to at least try something.
Wednesday, August 19, 2009
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2 comments:
Let me try to provide a few points of rebuttal to your quandary, with the following caveats: I'm not a big fan of insurance companies, and I'm not necessarily opposed to a public option.
1. For some industries, the notion of perfect competition doesn't really apply. The insurance industry is one of these.
Perfect competition requires both parties to a transaction to have the same knowledge, which is certainly not the case with the insurance industry. You know far more about your health than your insurance company does, and will only buy insurance if it benefits you to have it. This is why insurance companies charge individuals ridiculously high rates.
Insurers are able to reduce the risk associated with their knowledge gap by spending insane amounts of money researching individuals' health, but where they really mitigate their risk is by pooling together many people, especially if these individuals do not have highly corellated health risks (i.e., they all work for one employer). The larger the pool, the cheaper the cost to insure. This is why insurance companies benefit greatly from economies of scale. Also, insurance gets cheaper the more employers incent employees to join their plan, through payment of a portion or all of their premiums. People who otherwise wouldn't choose insurance because they don't use a lot of medical care then join as well.
Like a private employer offering insurance, the public option has the effect of creating a pool of applicants (42 million strong, according to the Administration), because it forces everyone to get insurance (or greatly penalizes them if they don't). The government (or private insurers, as I'll talk about later) gets to insure this huge pool, as opposed to employer-based insurers who insure only tens, hundreds, or thousands of people per pool. Couple that with the likelihood that many of the uninsured are low-cost and low-risk, and you quickly realize that an employer-based insurance system will not be able to compete. A large number of businesses will likely stop offering their employees insurance, which is why you see huge numbers of people losing their current (employer-based) coverage under a new plan, according to reputable sources like the GAO.
For this reason alone, I think a public option for health insurance will inevitably lead to the end of employer-based coverage. It won't cause the end of competition in the marketplace (see point 2), but it does mean the Administration's talking point that "if you like your current insurance, you get to keep it" is BS.
2. The private market can't compete with a public option that isn't self-funding.
You argue that Medicare is "one of the best-run insurance companies in the country." I'd love to see support behind this, but I certainly don't dispute that this could be the case. However, it's also hemorrhaging cash, and will be bankrupt in 10 years. Yet, it still provides the same benefits and offers the same promises to future retirees, because it has the backing of the government and a political establishment that will bend over backward to keep it in place. So Medicare is effectively a heavily-subsidized entity. There's not a chance in the world that any private company could operate like that, or compete with an entity that can.
Even more importantly, current Medicare recipients didn't pay anywhere close to the benefits they're getting from the program. If they did (or if they paid into the system at the same time they were receiving benefits), I'm guessing overall satisfaction would plummet.
In short, if you leveled the playing field by (1) putting everyone into the same pool (eliminating private insurance) and forcing everyone to get health insurance, and (2) established a public option that absolutely, positively had to be self-funding, you'd be able to introduce a public option with which insurance companies would certainly be able to compete. However, you and I both know that's not the idea behind this legislation, nor will it ever be.
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