I wrote this about three weeks ago as an op-ed for a local paper. But, by the time the editor got to it, the public option was in trouble in the Senate where it remains. It might be dead this year. But let’s not forget that the House voted for it. And a House-Senate conference committee will have to figure out how to merge the two bills. As we move closer to that moment, the public option, which has been counted out more than once before, may make a comeback.
And the fundamental reason is that it just makes sense. That’s why public support for the public option remains high as 60 and 65 percent of the public think it is a good idea.
In most of the country one or two companies dominate the market. (Here in Southeastern PA, Independence Blue Cross has 73% of the market.). With minimal competition in the health insurance markets, a public option is necessary to drive down the costs of insurance and control health care costs.
And, given how much Americans have learned about how private insurers abuse not only people denied coverage but people who actually have health insurance and are denied health care, the idea of a non-profit backup plan offered by the government and open to all is very attractive. New insurance regulations will stop most of the shenanigans private insurers engage in today but we can’t be sure that they won’t find some loopholes by which to deny coverage or care to people are really ill. The public option is the guarantee we all need that health care will always be available.
It’s not just that arguments for the public option are compelling, but that the arguments against it are so weak. Plausible—let alone good—arguments against the public option are difficult to find.
Americans are no longer scared by the lies of the right wingers. We all know that an optional public plan will not lead to a government takeover of all insurance. We all know that the charge of “socialism” is ludicrous.
It no longer works to say that government is inefficient. Most everyone knows that the administrative costs of Medicare—3%—are far lower than that of private insurance companies, which range from 8% to 30%.
It’s no longer plausible to complain about bad government-provided insurance when everyone knows that, for all its problems, Medicare is better liked than private insurance.
The critics of the public option have been reduced to basically one argument, that a public option will pay health care providers so little that they will charge private insurers more, thereby raising premiums.
This “cost-shifting” argument sounds initially plausible. But while it’s more sophisticated than shouts of “socialism,” it has about as much merit.
The only study that purports to support this claim—the Milliman report paid for by AHIP, the health insurance lobby—does not make the case. All it shows is that Medicare typically pays less than private insurers do for the same medical procedures.
Even if true, this does not support the cost-shifting claim. Let’s look at a simple analogy, borrowed from the economist Austin Frakt. Wal-Mart pays less for razor blades purchased at wholesale from Gillette than your corner grocer. Does that mean that Gillette is losing money when it sells to Wal-Mart and makes it up by charging your corner grocery more?
No, of course not. No rational business like Gillette would continually sell its product at a loss.
And Gillette cannot “shift costs” by charging your corner grocer more because that would make its blades so expensive that no one would buy them.
So why does Wal-Mart get a price break from Gillette? Because it is a huge purchaser of razor blades. The cost per unit of delivering blades to Wal-Mart is lower than that of delivering blades to your corner store. Its market power may also drive profit margins down, but Gillette makes money selling huge quantities of blades to Wal-Mart.
Health care is more complicated than razor blades but the laws of supply and demand still apply. Medicare can secure lower costs than private insurers because the administrative costs for health care providers in seeking reimbursements from Medicare are lower and because Medicare buys health care in bulk.
The proof that private health insurers are not suffering from cost-shifting is that their profits have been skyrocketing. At the ten largest health insurance companies, profits went from $2.4 billion to $12.9 billion between 2000 and 2007, a 428 percent increase.
Such profit growth can mean only one of two things for Medicare cost-shifting. Either it is simply does not occur. Or, if it does occur, then the monopoly position of health insurance companies allows them to pass rising health care costs along to employers and employees, rather than trying to hold them down. And, if this is true, we have no hope of controlling health care premiums unless we create competition for private insurance.
The final nail in the coffin of the cost-shifting argument is a 2009 report by MedPac, an, independent agency that advises Congress, showing that Medicare pays more than enough to cover the costs of hospitals, except those that are highly inefficient. If we want to hold down costs, that’s exactly what Medicare should be doing.
We may not get a public option this year but we will get something like it sooner or later because, as I said, it just makes sense.