Thursday, October 29, 2009

The Real Problem With The Public Option

The public option is in the news again of late, despite the Obama administration's politically motivated indifference to the idea. For those who may not remember (or have never been quite clear), the public option, put simply, would involve creating a government health insurance company to compete with private insurers. Supporters claim such a plan would help insure more Americans and lower costs, while opponents claim such a plan would result in higher taxes and higher premiums for those with private insurance.

Obviously, I'm in the latter camp, but it occurred to me today that there's a major, simple flaw with the public option beyond the more complicated looks at future costs. That flaw becomes more clear when you ask the simple question, what specific problem is the public option looking to address? The general problem is health care costs, but the specific problem must involve the pricing particulars and profit margins of the health insurance industry and that alone makes me suspicious of the public option.

Health insurers simply don't make enough profits to explain the drastic increase in health care costs that have occurred over recent years. And from what I understand, profits in the health insurance industry have been traditionally lower and remained traditionally lower from a large number of other industries. If increases in health care costs were be explained by rapidly growing corporate profits, than you'd expect to see the same exponential increase in health insurance profits that you see in overall health care costs. That we don't see such trends tells us that if we're looking to the health insurance industry and the practices of third party payers to fix the problem of escalating health care costs, we need to look not at profits, but at administrative costs and the payments to health service providers. And this is where the argument for a public option breaks down even further.

That the competition of a publicly administered health care plan would somehow reduce administrative costs in the private sector is preposterous on it's face. If simple, practical, and legal solutions to reduce the administrative costs of health care plans existed, someone out there would have figured them out, as it's not as though the incentives to reduce overhead and drastically improve profit margins don't already exist. What your left with is the real way for the public option to reduce costs and what the public option is really all about. What your left with is the ability of government to force health care providers to accept lower reimbursement rates than they currently accept from health insurance companies. And yes, it works, but at what cost to the economy? There's never been an individualized market for products and services in the history of the world that's been able to provide a better product for less money through government fiat. What we're talking about is either a system that would pass costs on to those with private insurance coverage or a system of de facto price controls. It's one or the other and supporters of the public option can't seem to be honest about it. Unless you beleive in the magic wand of government there's just no reason to beleive in the long term success of the public option.


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