The Unhealthy 'Public Option'

Using government-run health insurance to fix the status quo is like using a brick to improve a window


If Medicare were a bank, federal regulators would be closing its doors, selling its operations, and sacking its managers. Thanks to soaring costs, the program is fast running out of money—even though it pays such low fees that many doctors refuse to take Medicare patients. Meanwhile, Medicare fraud costs taxpayers some $60 billion a year, according to a report by CBS's 60 Minutes, making it among the most profitable fields for felons.

That's our experience with government-run health insurance for the elderly. So what do congressional Democrats propose to do? Offer government-run health insurance to everyone else.

Senate Majority Leader Harry Reid capitulated to his party's more liberal elements when he said he will insist that health care legislation include a "public option"—a government insurance plan—to bring "meaningful reform to our broken system." But deploying a version of Medicare to repair the status quo is like using a brick to improve a window.

President Obama says it would help consumers by giving private insurers some real competition. But the typical state has 27 companies competing in the small-group health insurance market. If there were insufficient competition, the health insurance sector wouldn't rank 86th among American industries in profitability.

Health care plans average profits of just 3.3 percent. In wireless communications, a vigorously contested market, profits are 11 percent. Does Obama think we need a government cell-phone company to compete with Verizon and AT&T?

The proponents also believe that, like Medicare, a new government plan could be run far more efficiently than private firms. Don't make me laugh. Medicare, keep in mind, is going broke. And its alleged efficiencies are illusory or nontransferable.

Health economists Regina Herzlinger of Harvard and Robert Book of the Heritage Foundation note that on a per-person basis, Medicare has higher administrative costs than private firms. They look smaller only because the average Medicare patient uses more services than the average private insurance patient. "Expressing them as a percentage makes Medicare's administrative costs appear lower because they are spread over a larger base of health care costs," write Book and Herzlinger.

A "public option" might duplicate one of Medicare's means of saving money: limiting reimbursements to doctors and hospitals to far less than what private insurers pay. But 19 health-care organizations that support reform, including the Mayo Clinic, explained the flaw in that approach.

"Under the current Medicare system, a majority of doctors and hospitals that care for Medicare patients are paid substantially less than it costs to treat them," they said in an open letter to Congress. "Many providers are therefore already approaching a point where they can not afford to see Medicare patients." Last year, the government's Medicare Payment Advisory Commission reported that 29 percent of recipients who were looking for a primary care physician had trouble finding one.

Skimpy reimbursements lower Medicare's costs. But if a new government-run plan tries the same trick, it will have trouble attracting providers and therefore patients. If it pays the same rates as private insurers, on the other hand, it will lose that big competitive edge.

Fortunately for disciples of government expansion, the "public option" insurance has other advantages. Obama insists it will have to cover all its costs. Oh, really? When Medicare Part B (which pays doctor bills) was set up in 1966, premiums paid by retirees were supposed to cover 50 percent of its outlays. Instead, Congress limited rate increases so that before long, premiums were covering just 25 percent of the bills, a practice later written into law.

If the Washington-run plan charges too little to pay its expenses, will it raise rates, thus antagonizing what could be a sizable group of voters? Or will Congress cough up the money to keep it going? You know the answer.

In the end, the key to the success of this program, writes Cato Institute analyst Michael Cannon, is that "government possesses both the power to hide its true costs (which keeps its premiums artificially low) and to impose costs on its competitors (which unnecessarily pushes private insurance premiums higher)." Private insurers will be "competing" against a team that gets to write the rules, run the draft and hire the referees.

With those artificial advantages, the public option could eventually become the only option. If that happens, a lot of Americans will be surprised. But I suspect Harry Reid and Barack Obama will not be among them.


NEXT: The People in France Look Different from the People in Europe

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  1. Neither Medicare nor any other Federal program can, conceptually, ever “run out of money.” The US can create as much money (paper and electronic bits in spreadsheets) as it wants. The only real question — ever — with the “solvency” of any of these programs is how much of the country’s GDP do you want to seize and spend on this versus something else, and what kind of wealth redistribution scheme do you want to enact at the same time, to support the side goal of equalizing wealth (hope you’ve all noticed this side goal has been an accepted part of public policy for many decades now).

    I’m against both the main goal (paying for health care publicly), and the side goal. But I feel the need to set people straight on the facts.

    1. Agreed. Money is basically a non-issue for the government, because they CAN just print money whenever they want. It’s insane, money is becoming worthless!

  2. Comment counter is reading high before I submit this.

  3. Schumer has to win the Backpfeifengesicht contest. I’d want to punch him even if I didn’t detest his politics.

    1. I second this. I was looking at the picture and thinking he needed a good smack.

      1. I vote Chuck Schumer for “Most Deserving of Being Backed Over by a Trash Truck.”

        I get a knot in my gut every time I even think of that piece of shit. I really wish he would just get immolated and die a horrible death. He is a prick of the highest magnitude.

  4. Caption contest.

    “Government efficiencies mean I won’t glove this hand. Now, try to relax.”

    1. “Uh uh uhhh. Hands out of the coo-kie jarrrrr!”

  5. If anyone were to be surprised that a public option would run private insurance out of the market, they didn’t bother thinking. Private insurance has to compete with solvency in mind. Government can just force doctors to accept less money, while printing more of it to cover all the extra waste created in management.

    1. True and somehow proponents of a public option view this as a positive thing.

      “Now the right is arguing that they don’t want the public option because it will be too effective and will run insurance companies out of business hahaha!!” – Idiot

  6. “But the typical state has 27 companies competing in the small-group health insurance market.”

    As just a point of fact: this is a rather misleading claim, confusing rather than informing people. The problem with the level of competition in most of these markets is not about the sheer number of little guys: it’s about the special breaks that hospitals give the few guys big enough to threaten to take their customers elsewhere (forcing hospitals to then shift the costs of these breaks onto everyone else). That’s true of Medicare AND many private plans. Trying to portray these markets as traditionally competitive, with Medicare as the one oddball, is simply deceptive.

    They’re highly dysfunctional and distorted because of the current government regulatory structure and just the sheer nonsensical nature of the way health insurance traditionally works in the US (large groups of people locked into particular insurance companies through employer plans).

    I wish the GOP was providing a credible set of reforms to counter Democratic plans (which don’t seem to be addressing much of anything other than pure coverage expansion), but the party seems more interested in headlining raving lunatics rather than promoting or seeking to sell the ideas of actual conservative policy people.

  7. Good grief. In the end, the best the democrats can come up with is a plan to pay providers less.

    Not surprising since it was never about reducing costs, improving outcomes, etc., as Obama so often promised. It was always about providing health care to everyone regardless of how much it costs.

  8. It was always about providing health care to everyone regardless of how much it costs.

    It’s not even as idealistic as that. Anyone in this country who needs health care can get it already. It’s about providing health insurance to everyone, regardless of cost.

    1. Yes, see your point, but it’s about people getting all the health care they want, whenever they want it, and not having to go bankrupt in the process.

  9. What’s more, to pay for this crap, they are gonna cut Medicare payments substantially.

    What happens when doctors refuse to see Medicare patients (that is, old people)? Will they arrest them? Charge them with hate crimes against the elderly?

    1. Probably. They will basically turn doctors into slaves, only working for everyone else’s benefits and not their own.

      1. Yes, yes they will turn doctors into slaves. Like all those slave doctors in all those other countries that provide health care for free to their citizens. Who will stand up for these poor creatures, forced to practice medicine by cruel bureaucrats armed with whips? The horror!

        1. What is far more likely is that doctors will retire early because it won’t be worth the effort to continue to practice, and fewer people in the future will choose to become doctors in the first place. This HAS happened in “all those other countries that provide health care for free to their citizens” and has resulted in increased waits for care and increased death for treatable conditions such as breast and prostate cancer.

          BTW, no country provides health care for free, genius. It has to get paid for one way or another. The joke is that we’re supposed to believe that the government will be more cost-effective than the private sector when all evidence points to the contrary.

    2. There are already clinics and hospitals who won’t accept Medicare patients. Check out Mayo Clinic in Phoenix.

  10. The US House and Senate are about to pass through healthcare reform with ZERO incentives to encourage healthy lifestyles. I have a few ideas that would not only lower healthcare costs- it would also create MILLIONS of new permanent jobs nationwide:
    1.Increase SNAP Food credit to Low income Seniors and the disabled who are on Doctor Ordered Restricted diets ( Diabetic,food allergies,low sodium, ect)
    2. Anyone who’s over 40 pounds overweight would receive a Taxbreak for Healthclub membership
    3.Meals on Wheels for the elderly and disabled would be expanded to rural communities
    4. VA Clinics, Thrift stores such as Salvation Army, Goodwill, would receive shelf-stable Government Commodity Food ( Low Glycemic Indexed and Sugarfree/Low Sodium): Anyone showing a Food Credit ID Card would receive the food free of charge- all others pay a nominal, minimum fee to cover shipping. handling.
    These steps would create permanent decent jobs nation-wide AND lower healthcare costs at the same time! Interested? Forward my post to your Congressmen.

    1. You make it sound like it’s any of Congress’s fucking business how healthy my lifestyle is.

      Here’s a thought, if you want to live a healthy lifestyle, there is a massively complex formula you must follow:

      1. Eat less
      2. Exercise
      3. Pay for it your own goddamned self

      1. Agreed 300%.

        IMHO, Health care is not an “intrinsic right” at all, like liberals claim. We all have the right to food, water,air, and etc. Those God-given resources are all we need to lead a healthy life. As well as moderate exercise, quitting smoking, and drinking less.Health care is more of a “political right”. Read “Does God Favor an Unlimited State” by Mark Tooley.

        When are people going to learn to just simply be responsible for their own well-being?

    2. Not interested in the least. In fact, I’m repelled by your ideas.

      Our government shouldn’t be in the business of telling people how to live their lives. I don’t care if your ideas have merit or not, they shouldn’t be in the purview of the federal government.

      This desire to meddle by passing laws for the “good” of various people is exactly how we got ourselves into this mess.

      The feds should be protecting private property rights, repelling furiners and removing restrictions to free voluntary trade.

      1. I agree with da Pope (Jimbo).

      2. What if they’re on medicaid? Do taxpayers have the right to demand a healthy lifestyle if we’re paying for their health care?

        I say hell yes. I don’t want to see any fat people on medicaid. You have one year to get in shape and eat right or you’re off the government tit. No one is forcing you to take free health care, but if you do there should be requirements to keep costs down. And if they can’t comply, kick them to the curb and let them suffer. Tough shit.

        1. I got a better idea: how about we just not pay for their health care? Then they can do whatever the fuck they want, and we don’t have to pick up the tab.

          1. Agreed. But what are the chances that cutting off government health insurance cold turkey will happen? Next to nil.

            However, most Americans would regard as fair a requirement of healthy living as a precondition for free care. Since a lot of people would fail those preconditions, the number of people subsidized by taxpayers would fall, yet there would be much less outcry since they’re not keeping their side of the bargain.

            It’s just a more socially acceptable tactical suggestion to cut back on government control.

        2. Fat people, smokers and other pariahs all tend to cost less (see various Reason posts for the exact facts) than healthy people. Sure they run up some big costs in the last year of their life, but their total is less than that of “healthy” people.

          If we have to meddle, we should force healthy people to smoke, drink and overeat in order to keep total health care costs down.

          Forcing seniors to chain smoke would stimulate the economy (tobacco farmers, whitening toothpaste makers, etc.) and help save social security. Win-Win.

  11. I agree vince. Extend that to everyone receiving money from the government. If you’re on welfare, you should be subject to whatever we taxpayers want. Don’t like it, go begging somewhere else.

    1. While I agree with the sentiment here, it would set a bad precendent. Politicians would then try to make everyone recieve money from the government in one form or another. That way they could control everyones actions.

      1. Isn’t that already the case though?

    2. Vince: “Do taxpayers have the right to demand a healthy lifestyle if we’re paying for their health care?”

      Well, that’s the slippery slope here. (Cabeza’s on the right track.) Should ‘universal’ health care be passed, -everyone- will be on the government ‘tit’ (as you put it) receiving health care once private insurance companies are wiped out. That means -everyone- will be required to follow the government’s idea of a ‘healthy lifestyle.’

    3. So the government is sort of like your parents?

      “Listen if you are going to live under my spacious skies, eating my amber waves of grain you are gonna have to follow my rules. You can’t just lie around on the fruited plains all day doing nothing. And you for sure can’t be hanging out at the purple mountain majesties all night with your buddies. My rules sea to shining sea!”

  12. Granted, it would have to be combined with the ability to opt-out, or I agree it’s a no go.

  13. Oh no! Here comes that screaming sow-wind again!

  14. Is it possible for a libertardian to make an argument without using the Cato Institute or the Heritage Foundation as “experts”? Lame.

    1. “Lame” to base arguments on research and analysis?

      You’re a liberal, right? Wild guess.

  15. Hey, idiot – it’s not just “lame” to cite free market think tanks in order to defend free market ideals, it’s lazy.

    And who are you, Joe McCarthy? Have you no decency, sir? At long last, have you left no sense of decency?

    1. Were you going to bother actually counter any of the arguments or cite any incorrect facts in this article? Or does your “laziness” compel you to vomit ad hominems?

  16. “If Medicare were a bank, federal regulators would be closing its doors, selling its operations, and sacking its managers.”

    Yo, Steve? Worry about the facts much? Medicare takes in more money than it spends, and even without any changes will continue to do so until sometime between 2014 to 2028, depending on who you ask. Are federal regulators closing many banks that take in more money than they spend?

    1. Um, No: “Medicare takes in more money than it spends”

      Isn’t that what progressives accuse health insurance companies of doing? If medicare really takes in more money then it spends then you need to ask your self what your benevolent bureaucrats and politicians are doing with all that extra money. Mostly likely giving it to their corporate buddies.

    2. Medicare takes in more money than it spends

      I can also bet that your average welfare recipient also takes in more money than he/she spends. The question isn’t a cashflow question per se, but what the sources of that cashflow are and how long those sources can continue to fund projects that are no longer fiscally viable.

      A simple search on Wikipedia leads you to multiple authoritative sources that state that Medicare doesn’t take in enough money in taxes to pay for its current expenses. That gap (which is currently filled by other means) is expected to make the system financially insolvent by 2019.

      The current ponzi-scheme system is headed for collapse, and Obama wants to extend that ponzi-scheme to include all Americans.

      The question the media, our congresspeople and leftist cheerleaders refuse to answer is what will happen when (not if) ObamaCare ceases to pay for itself?

  17. Um, No: “Medicare takes in more money than it spends”

    Isn’t that what progressives accuse health insurance companies of doing?

  18. Great article. Why is it so hard for Congress to understand this….do they have an agenda??

  19. Congress does have a malicious agenda. It is to turn this free country into socialism. The liberal democrats in congress and even our executive branch are well aware of this. They just want you to buy into the fact that everything is going to be ok. We Americans are smarter than that right guys?

  20. I love this article!


  22. Umm, I’m sure all of you are correct in your diagnosis of the problem, the appropriate responses, and the inappropriateness of everyone else’s responses. I just wonder why the US spends more on medical than anyone else, yet we don’t have the best outcomes by any measure. Surely we can do better. Only the terminally provincial can claim we live in the best of all possible health care worlds.

  23. My only point is that if you take the Bible straight, as I’m sure many of Reasons readers do, you will see a lot of the Old Testament stuff as absolutely insane. Even some cursory knowledge of Hebrew and doing some mathematics and logic will tell you that you really won’t get the full deal by just doing regular skill english reading for those books. In other words, there’s more to the books of the Bible than most will ever grasp. I’m not concerned that Mr. Crumb will go to hell or anything crazy like that! It’s just that he, like many types of religionists, seems to take it literally, take it straight…the Bible’s books were not written by straight laced divinity students in 3 piece suits who white wash religious beliefs as if God made them with clothes on…the Bible’s books were written by people with very different mindsets…

  24. My only point is that if you take the Bible straight, as I’m sure many of Reasons readers do, you will see a lot of the Old Testament stuff as absolutely insane.

  25. costs the bill creates don’t vaporize. They’re merely transferred to taxpayers nationwide?or financed with deficits, which will be financed eventually with higher taxes.” Ironically, proponents claim that, “like Medicare, a new government plan could be run far more efficiently than private firms.” But Medicare is going broke! And Nancy Pelosi had the nerve to assert, “Today, we are ? laying the?

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