Myth 9. A “public option” is needed to spur competition, keep private plans honest, and bring down costs.

The White House claims that the choice of a public plan operating alongside private plans would spur private plans to improve. It also promises that all plans would be playing by the same rules.

According to a July 2 letter from the Congressional Budget Office (CBO), the addition of a government-run plan provision to the Dodd/Kennedy bill, the Affordable Health Choices Act, “did not have any substantial effect on the cost or enrollment projections, largely because the public plan would pay providers of health care at rates comparable to privately negotiated rates—and thus was not projected to have premiums lower than those charged by private insurance in the exchanges.”

In other words, the government either keeps its word about competing on a level playing field, in which case the plan is pointless, or the government plan gets unfair advantages, notes Andy Chasin in a memo to Republican Health Policy Staff.

Advocates for the public option, such as former Secretary of Labor Robert Reich, say it is the “lynchpin of health-care cost containment”—because without it, “the other parties that comprise America’s non-system of health care—private insurers, doctors, hospitals, drug companies, and medical suppliers—have little or no incentive to supply high-quality care at a lower cost….” (Wall St J 6/24/09).

In other words, the public plan is expected to use its monopsony power to squeeze providers.

Economist Paul Krugman agrees: A public plan would have the “bargaining power needed to bring down costs” (NY Times 6/22/09).

Gregory Mankiw points out that it wouldn’t really bring down costs, just shift them from consumer to provider. The same thing could be accomplished by taxing providers and using the proceeds to subsidize consumer purchases (NY Times 6/28/09).

Cost-shifting from the big public plans called Medicare and Medicaid already adds an estimated $89 billion to private insurance costs. Crowd-out is amply demonstrated: up to one-half of children newly enrolled in the State Children’s Health Insurance Program (SCHIP) previously had private coverage. A Robert Wood Johnson survey of 22 studies concluded that substitution of government for private coverage “seems inevitable” (Michael Tanner, “Obamacare to Come: Seven Bad Ideas for Health Care Reform, Cato Policy Analysis No. 638, May 21, 2009).

Bargaining power is not the only potential source of lower prices charged by government, notes John Calfee: just look at Fannie Mae and Freddie Mac. They were viewed as less risky because the government was expected to bail them out if they failed (Wall St J 6/26/09).

The other advantage of the government is that it can always change the rules, observes Michael Tanner.

“Let’s get this straight: 1300 insurance companies aren’t enough to have competition? We need 1301 to suddenly make it all OK?” asks Rossputin.

And if the government wanted more competition among insurers, why not repeal the McCarran-Ferguson exemption that shields the business of insurance from antitrust law?

One enormous advantage the federal plan will almost certainly have is exemption from 50 sets of state mandates that make health insurance unaffordable for so many.

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5 thoughts on “Myth 9. A “public option” is needed to spur competition, keep private plans honest, and bring down costs.

  1. It is irritating toi me that my $310 annual dues help support AAPS as a mouthpiece for corporate insurers. Any experienced clinician knows that there isn’t $.02 difference between Aetna, Humana, BC/BS, as to premiums, reimbursement rates or schemes to deny, reduce, avoid, delay or disallow benefits. The industry admits to an overhead rate of 32% of every health care dollar spent, and when the real overhead is disclosed, it is closer to 70%. When they lose money on their non-health care investments they simply raise their rates, with the approval of the rubber-stamp insurance commissions they have created with their politicla contributions in every state.

    Sayng that a government-sponsored health care insurance alternative isn’t necessary is like saying that swimming with hungry sharks in a feeding frenzy isn’t hazardous. Saying that such an alternative isn’t fair to corporate insurers is like saying that carrying a rifle in polar bear country is unfair to the bears.

    Since when did AAPS become the apologist for health insurance corporations, who have screwed every doctor in America out of hundreds of billions of dollars? Lying down with the enemy is not the correct strategy for opposing mindless governmental bureaucracy. It only labels us as toadies for the corporations and destroys our credibility.

    AAPS needs to do some useful thinking and make intelligent contributions to the health care dialogue. Simply yelping and repetition of right wing propaganda from the Wall Street Journal is putting AAPS into the commode in public and legislative opinion.

  2. YIKES! Reality check for Dr. Hochman….So let’s all be good little Nazi doctors enslaved to the government. That’s certainly would be a MUCH better alternative to the EVIL private competitive Insurance companies. I can’t think of a more efficient system for Health Care insurance than a governmental bureaucratic system. Simple solution for Dr. Hochman, would be to not accept any private insurance reimbursements. I’m curious as to why the Government, which is broke and has over a trillion in debt and unsustainable costs for Medicare, thinks it can meddle further in Health Care delivery system. What private insurance company is a primary payer competitor for Medicare which of course, has NEVER screwed any doctors out of any money….they just pay them peanuts and have these nasty onerous regulations.

  3. Republican Senator’s worry that a public plan would put the private insurance companies out of business. That says volumes about who they consider to be their main constituents …and it’s not you and me.

    But beyond that let’s look at their argument. They contend that if offered the choice, Americans would abandon their outrageously expensive private plans in favor of a public plan. The implication is that the government would offer an attractive alternative at a cheaper cost.
    That is a real argument.
    Most American really have a bad image of the insurance industry. In a Harris Poll in 2007 the question was asked “Which of these industries do you think are generally honest and trustworthy – so that you normally believe a statement by a company in that industry?”. The insurance industry scored a low 7% among various industries. ..almost as low as the oil industry

    When pollsters asked
    “When you think of the rising costs of health care, who do you think is most responsible?
    41% of respondents blamed the insurance industry.

    So Republican legislators really have a point.
    Americans mistrust the insurance industry and blame it for rising health care costs. A good reason why many Americans, if given the choice between government and private will abandon their private insurance…despite gloom and doom stories about long waits and government bureaucracy.

    Insurance companies and their Republican legislators are right to be worried. The bilking of the American public by the insurance industry is coming to an end.

  4. Pingback: House bill would destroy private insurance—and private medicine « AAPS News of the Day

  5. Private insurance companies charge as much as they can and pay as little as they must. They are purely profit driven with no care for the well being or benefit of their patients. Medical providers charge as much as they can and take what they can get from the medical insurers. Again, a profit driven enterprise. The root problem with our medical care system is the fact that it is a profit driven enterprise, not a public service.

    Medical care is a fundamental responsibility of a civilized society, not a capatilistic commodity.

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