Tying Up Loose Ends: The Public Plan

27 Jul

This is not the post I had planned for today. That will follow later today. First, though, I have to tie up some loose ends in the form of comments that I’ve received on my “Fear Not” posts.

Here are some excerpts along with my replies…..

…I think it’s a little disingenuous to suggest the Canadian healthcare system is not state provided. Delivered by so called “private providers”, sure, but the state is certainly paying for at least 70% of it. The vast majority of Canadian physicians participate solely in the public sector, and the state is their exclusive source of revenue. This is certainly NOT how it is in the U.S….

While I’m not sure where the 70% figure comes from regarding Canada, I can state that the in the United States, roughly 46% of national health care expenditures are publicly financed. So, if the definition of “state-provided” health care has only to do with who is paying for things, then the American system is half “state-provided” already. I really don’t think that folks with Medicare see it that way. They go to the doctor just like they always have. They just have a different source of insurance than they had when they were younger.

…state run healthcare systems will attempt to control rising administrative costs and end up restricting healthcare supply. It is impossible to claim the government will not determine which benefits to provide, because the dollar always decides….

Here it is suggested that healthcare supply will be restricted to control rising administrative costs. The problem with this line of reasoning is that government insurance has administrative costs of around 2 – 3%, while private insurers come in around 20 – 30%. This is a case where the costs of competition (e.g., advertising) are passed on to the consumer. Government, as an entity not seeking a profit, is able to eliminate these administrative costs. They don’t do this by cutting benefits. They do it by operating more efficiently than the private sector. I know that’s hard to believe, because government is often bureaucratic and inefficient, but it’s based on sound empirical evidence in this case. The result is actually that the savings on the administrative side of the coin could be used to provide better benefits.

The claim that “the dollar always decides” is very true. One needs look no further than the series of explicit rationing decisions in the Oregon Plan. The issue is that our system operates on a fee-for-service model where the patients don’t know what they really need most of the time. Thus, providers have perverse incentives to do anything and everything they see fit to do, as long as there is any chance that it might be even minimally beneficial. That is inherently wasteful, especially once aggregated to the national level. Because we so prize life and health, and because we are shielded from many of the costs of our care, we seek to maximize our individual benefit, to the detriment of the whole.

…our system needs some major work…the primary culprit for our outrageous costs are the insurance companies. I very much support efforts to better regulate these crooks – but I certainly do not want a mandated public health plan. As best as I can tell, I believe the proposed legislation allows you to keep your current provider but not switch to a new one. Am I mistaken about this?

This is definitely a big concern for many people, but it’s just not true. First, there are multiple versions of legislation being drafted, and the only one that’s actually been made publicly available is the House bill. There is definitely talk of an insurance mandate, but not a “mandated public health plan.” That is, everyone is required to have insurance, but that could be employer-based, Medicaid, Medicare, the new public plan, or individual private insurance purchased through the Exchange.

The proposed legislation allows you to keep your current provider and puts consumer protections in place that will keep that provider from cutting benefits and/or increasing premiums at an unreasonable rate. However, you will also be able to switch to a new provider as you wish. The only stipulation is that to offer coverage, private insurers must participate in the Exchange. It’s helpful to think of the Exchange like a Farmer’s Market. This is where you go to buy your coverage. The public plan is on sale there, but so are all the private plans. The idea is that this will be how the government can regulate the private insurers through competitive practices. Would you buy tomatoes for $5 a pound if the exact same tomotoes were available for $2 a pound or $1 a pound? No. Likewise, if one private insurer offers the same benefits at a higher price than another private insurer or the public plan, most people will “vote with their feet” and switch to a less expensive plan with the same benefits.

The bottom line: The proposed public plan option is an option. No one is being forced to enroll in the public plan. It represents more choice, not less. And it also promises to keep the private insurers in line, which means that everyone will have better options to choose from.

1 Comment

Posted by on July 27, 2009 in Uncategorized


One response to “Tying Up Loose Ends: The Public Plan

  1. Joel

    July 27, 2009 at 6:37 pm

    Thanks for the detailed reply and clarifications. We obviously disagree pretty drastically about the merits of the proposed healthcare plan, so I appreciate the forum in which to read about it and ask questions / make statements.The more I understand about these proposals, the more it sounds like a Fannie Mae & Freddie Mac style government sponsored enterprise initiative. As some of us predicted and the rest found out, artificially propping up a market with limitless funding is generally a bad idea. I very much doubt a government backed health insurer will be a sustainable affair, and will likely prove as economically unsound as it has elsewhere."You can leave here with a pound of tomatoes for $5, $2, or $1. But you can't leave without buying one."The obvious plan here is to get everybody on the $1 tomato option. When you learn that only a government backed, taxpayer supported monopoly could provide you with such cheap tomatoes, the option looks less enticing – at least to those of us that pay taxes. It begins to become clear why things like marketing costs aren't necessary anymore: It isn't because there's no profit incentive, it's that there's no competition.In addition, the proposed "Health Insurance Exchange" collective being the only platform through which private insurance may be offered makes me very uncomfortable. If we are operating under the guise of true market competition, why not allow private insurers to exist independently?I've always felt that the best consumer protection efforts involved education and awareness – not rent controls, minimum wages, or mandated premium ceilings.


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