Public Option

Why is the “public option” so important to those on the Left? Nancy Pelosi, for example, rejects any attempt at health care reform that does not include it. For that matter, why is the public option anathema to those on the Right (and many in the Center)? Blue dog Democrats, for example, are giving the Obama administration fits by withholding support for legislation that includes a “public option.”

When you listen to those on the Left discuss the public option, a publicly run, premium financed (in theory, at least) healthcare plan with close similarities to Medicare (but designed for those under 65) would increase competition with private insurers and magically reduce health care costs. When you listen to those on the Right, a publicly run plan is a first step toward Universal, government run health care and a nightmare landscape of poor service and on-going expense that just might bankrupt the country.

Like most things, the truth lies somewhere between these extremes, but in this debate, the concerns of those in the Center and on the Right hold sway. Robert Samuelson comments:

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. Congress periodically improves Medicare benefits, and there's a limit to how much squeezing reimbursement rates can check costs. Doctors and hospitals already complain that low payments limit services or discourage physicians from taking Medicare patients.

Even Hacker [the Yale political scientist who proposed the public option] concedes that without reimbursement rates close to Medicare's, the public plan would founder. If it had to "negotiate rates directly with providers" -- do what private insurers do -- the public plan could have "a very hard time" making inroads, he writes. Hacker opposes such weakened versions of the public plan.

By contrast, 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 some under-65 Americans enjoy lower premiums and others not? 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.

“So what?” cry those on the Left. If the evil private medical insurers go out of business, we’ll all be better off.

Really?

In a predictably brilliant essay on government provided “benefits,” Richard Fernandez of The Belmont Club writes:

Whenever a proposal is advanced to expand government oversight over activities such as child rearing, education and health care — and this includes subjects like euthanasia or family abuse — those who want to leave major choices to individuals or families, despite the fact they may sometimes or often do the wrong thing are described as uncaring, and ‘regressive’. In contrast, those who wish to shift the power of decision to government are characterized as “compassionate”, “enlightened” or “progressive”. And since there are often cases when government does better than individuals the substance of the decision can be argued back and forth.

One of the arguments for centralizing power in government is that it reduces variance. People get ’standard’ care, which is ‘equitable’ and predictable. This is contrasted with the wider distribution of outcomes when the same decisions are left to individuals. In the health care debate for example, there are people who obviously get great health care and others who get relatively bad insurance. Wouldn’t it be better if the variance were reduced by a government program?

And that, I think, lies at the crux of this debate. Those on the Left support an ideology that demands that we limit variance. Stated somewhat simplistically, everyone has a right to eat, and its best if everyone gets the same meal, even if that meal is gruel.

Fernandez continues:

Left out of this argument [about variance] is the idea of systemic risk. Leaving decisions to individuals makes it unlikely that they will all get it right but it equally implies they almost never get it all wrong. Society based on individual choices has a diversified portfolio of outcomes. In contrast if a government gets it wrong, it goes spectacularly wrong.

And there’s the rub. If the members of Congress pass an ill-conceived health care bill, it’s just possible that they’ll get it spectacularly wrong, especially if they try to reduce variance using a public option that could morph into a program that controls half of more of our healthcare system.

If it does go spectacularly wrong, all of us will look back wistfully at our current “broken” healthcare system.