Health Care: Why the Critics of a Public Option Are Wrong

Without a public option, the other parties that comprise America’s non-system of health care — private insurers, doctors, hospitals, drug companies, and medical suppliers — have little or no incentive to supply high-quality care at a lower cost than they do now.

Which is precisely why the public option has become such a lightening rod. The American Medical Association is dead-set against it, Big Pharma rejects it out of hand, and the biggest insurance companies won’t consider it. No other issue in the current health-care debate is as fiercely opposed by the medical establishment and their lobbies now swarming over Capitol Hill. Of course, they don’t want it. A public option would squeeze their profits and force them to undertake major reforms. That’s the whole point.

Critics say the public option is really a Trojan horse for a government takeover of all of health insurance. But nothing could be further from the truth. It’s an option. No one has to choose it. Individuals and families will merely be invited to compare costs and outcomes. Presumably they will choose the public plan only if it offers them and their families the best deal — more and better health care for less.

Private insurers say a public option would have an unfair advantage in achieving this goal. Being the one public plan, it will have large economies of scale that will enable it to negotiate more favorable terms with pharmaceutical companies and other providers. But why, exactly, is this unfair? Isn’t the whole point of cost containment to provide the public with health care on more favorable terms? If the public plan negotiates better terms — thereby demonstrating that drug companies and other providers can meet them — private plans could seek similar deals.

But, say the critics, the public plan starts off with an unfair advantage because it’s likely to have lower administrative costs. That may be true — Medicare’s administrative costs per enrollee are a small fraction of typical private insurance costs — but here again, why exactly is this unfair? Isn’t one of the goals of health-care cost containment to lower administrative costs? If the public option pushes private plans to trim their bureaucracies and become more efficient, that’s fine.

Critics complain that a public plan has an inherent advantage over private plans because the public won’t have to show profits. But plenty of private plans are already not-for-profit. And if nonprofit plans can offer high-quality health care more cheaply than for-profit plans, why should for-profit plans be coddled? The public plan would merely force profit-making private plans to take whatever steps were necessary to become more competitive. Once again, that’s a plus.

Critics charge that the public plan will be subsidized by the government. Here they have their facts wrong. Under every plan that’s being discussed on Capitol Hill, subsidies go to individuals and families who need them in order to afford health care, not to a public plan. Individuals and families use the subsidies to shop for the best care they can find. They’re free to choose the public plan, but that’s only one option. They could take their subsidy and buy a private plan just as easily. Legislation should also make crystal clear that the public plan, for its part, may not dip into general revenues to cover its costs. It must pay for itself. And any government entity that oversees the health-insurance pool or acts as referee in setting ground rules for all plans must not favor the public plan.

Finally, critics say that because of its breadth and national reach, the public plan will be able to collect and analyze patient information on a large scale to discover the best ways to improve care. The public plan might even allow clinicians who form accountable-care organizations to keep a portion of the savings they generate. Those opposed to a public option ask how private plans can ever compete with all this. The answer is they can and should. It’s the only way we have a prayer of taming health-care costs. But here’s some good news for the private plans. The information gleaned by the public plan about best practices will be made available to the private plans as they try to achieve the same or better outputs.

As a practical matter, the choice people make between private plans and a public one is likely to function as a check on both. Such competition will encourage private plans to do better — offering more value at less cost. At the same time, it will encourage the public plan to be as flexible as possible. In this way, private and public plans will offer one other benchmarks of what’s possible and desirable.

Mr. Obama says he wants a public plan. But the strength of the opposition to it, along with his own commitment to making the emerging bill “bipartisan,” is leading toward some oddball compromises. One would substitute nonprofit health insurance cooperatives for a public plan. But such cooperatives would lack the scale and authority to negotiate lower rates with drug companies and other providers, collect wide data on outcomes, or effect major change in the system.

Another emerging compromise is to hold off on a public option altogether unless or until private insurers fail to meet some targets for expanding coverage and lowering health-care costs years from now. But without a public option from the start, private insurers won’t have the incentives or system-wide model they need to reach these targets. And in politics, years from now usually means never.

To get health care moving again in Congress, the president will have to be clear about how to deal with its costs and whether and how a public plan is to be included as an option. The two are intimately related. Enough talk. He should come out swinging for the public option.

About Robert Reich 545 Articles

Robert Reich is the nation's 22nd Secretary of Labor and a professor at the University of California at Berkeley.

He has served as labor secretary in the Clinton administration, as an assistant to the solicitor general in the Ford administration and as head of the Federal Trade Commission's policy planning staff during the Carter administration.

He has written eleven books, including The Work of Nations, which has been translated into 22 languages; the best-sellers The Future of Success and Locked in the Cabinet, and his most recent book, Supercapitalism. His articles have appeared in the New Yorker, Atlantic Monthly, New York Times, Washington Post, and Wall Street Journal. Mr. Reich is co-founding editor of The American Prospect magazine. His weekly commentaries on public radio’s "Marketplace" are heard by nearly five million people.

In 2003, Mr. Reich was awarded the prestigious Vaclev Havel Foundation Prize, by the former Czech president, for his pioneering work in economic and social thought. In 2005, his play, Public Exposure, broke box office records at its world premiere on Cape Cod.

Mr. Reich has been a member of the faculties of Harvard’s John F. Kennedy School of Government and of Brandeis University. He received his B.A. from Dartmouth College, his M.A. from Oxford University, where he was a Rhodes Scholar, and his J.D. from Yale Law School.

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3 Comments on Health Care: Why the Critics of a Public Option Are Wrong

  1. A mandate with no public option is essentially what we have in Massachusetts. Everyone is covered, but absolutely nothing has been done to contain costs. And sure enough, every year since the birth of universal health care here, costs have steadily taken over the state budget while coverage has steadily increased.

    There really are 2 problems here: coverage (ie 47 million uninsured people in America), and costs (1 in 5 federal dollars expected to be taken over by
    Medicare and Medicaid expected in 2035)

    Solving the coverage problem is relatively simple.
    Solving the cost problem is a thorny issue – ultimately, someone’s gonna have to be paid less. Either doctors, or the private insurance companies, or taxpayers (indirectly as a result of removing the tax exemption on health care expenditures) — SOMEONE will be making less.

    Imagine for a moment:
    What if there were only name-brand foods at the supermarket and no generics?
    What if there was only UPS, FedEx, and DHL and no USPS?
    What if all universities were private universities, and there were no public universities?
    What if all elementary, middle, and high schools were private schools, and there were no public schools?

    See what I mean?

  2. How about abolishing the restricted supply caused by the AMA and LCME? Why do our “annointed ones” categorize this as purely a price issue rather than a supply issue (which it is)? Oh, I know why – because more complicated regulations around hospitals would put much money into the hands of lawyers. This plan will only sacrifice something for nothing. The total pie will remain the same. We need to fix the SUPPLY.

  3. A full blown public option will lead to the government plan being the only game in town. I find it hilarious when people say that the public option is only an option, and people will be able to keep their current plan. What person or company is going to keep a private plan that costs more money? This WILL lead to most private insurance companies going belly up. There is no way for them to compete with a public plan that gets their rates at Medicare costs. So the government will eventually be the only game in town, as most Democrats want but won’t come out and say it. Although, Obama is on record saying he wanted there to be a single payer system before he became president.

    There is no doubt that healthcare needs overhauling. Insurance companies have agreed to lift preexisting conditions in a healthcare overhaul, although Democrats still vilify them as though they haven’t agreed to do this in the future. America has the best and brightest doctors in the world but do you really think this will be the case in the future with the government squeezing hospitals for costs? Will the best and brightest still want to be doctors? I also find it hilarious that people are calling for America to be like Canada or France etc… Do we really want to be like those countries? That isn’t what has made this country so great.

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