It’s no surprise that a lot of people are in favor of a public health insurance option. The prospect of cheap insurance that covers more people is seductively appealing.
But a public option would have other consequences that are less desirable. One is that a public option would eventually crowd out most private insurance that can’t use taxpayers to absorb losses. The president’s claim that there would be fair competition between private and public plans is duplicitous at best. A public option would have to be heavily subsidized to make it enough cheaper than private plans to attract currently uninsured individuals; otherwise why bother creating it?
A study by the Lewin Group estimates that a public option with Medicare-level premiums could cover 28 million of the 46 million people who now are uninsured. That’s the good news. The bad news is that as many as another 119 million individuals would take advantage of taxpayer subsidies and drop their private insurance. That would trigger another and more serious consequence of a public option, which is that it would inevitably become an entitlement with the potential to exceed Medicare in scope and cost.
The Senate Finance Committee is trying to keep the cost of the proposed public program to a mere $1 trillion over the next 10 years. But even if the committee can reduce projected costs in the short run, it is a safe bet that over time political pressure to expand subsidies to get more of the uninsured covered will more than offset any short-term savings.
A recent Congressional Budget Office report says that the federal budget is already on an “unsustainable” path, primarily because of the rapidly rising costs of Medicare and Medicaid. The two programs are on track to absorb 32 percent of federal revenues by 2019, and the Medicare trustees estimate that they will eventually take all federal revenue without substantial tax increases or benefit cuts. Public option advocates may not care if private insurance disappears except for plans for the wealthy, but they are also ignoring the effects of an expensive new program on federal health care spending that will soon be the largest component of a national budget already deep in deficit.
The major problem in our mixed system of public and private health insurance is that for years health care costs have been rising much faster than economic growth or personal incomes. This trend is also no surprise. Our cover-everything insurance system defies the principles of good economics and predictable human behavior. Any time a valuable product or service appears to be free or even undervalued because someone else is paying the bills, demand will increase, the products or services will be overused, and costs will increase faster than would be the case if consumers had more incentive to be cost-conscious and providers had more incentive to be competitive.
The only way to control costs is to give consumers more responsibility for how their health care dollars are spent, not less. A combination of market-based reforms, including decoupling insurance from employment, refundable tax credits for insurance and health-savings accounts, freedom to purchase insurance from any company in the country subject to reasonable financial and transparency requirements, and high risk pools for those who wouldn’t qualify for standard policies, would go a long way toward meeting this goal. Greater cost-consciousness and competition would also trigger many of the changes in health care practice and delivery, which nearly everyone agrees are desirable.
Instead, the president and Democratic Congress want to create a new and hugely expensive entitlement program that would require the government to impose price controls and ultimately to ration care in an attempt to control costs, and would make higher taxes inevitable.
If they succeed, the portion of the public that is clamoring for cheap health insurance that someone else pays for will be complicit in the result. Sometimes you have to be careful what you wish for.
Martin Jones is an economic and financial analyst who lives in Freeport.