health care

A Government-Run Health Insurance Plan Would Be Less Radical Than Medicare For All. But It Still Wouldn't Work.

The public option comes with plenty of pitfalls.

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The health care debate in the Democratic primary so far has, for the most part, revolved around a single question: Medicare for All—or something else? 

Given the persistent political and policy challenges to passing and implementing a single-payer system along the lines envisioned by Sen. Bernie Sanders (I–Vt.) and other Medicare-for-All boosters, the answer is probably going to be "something else." So it's worth asking what that something might be.

The most likely answer is a "public plan" or "public option"—that is, a government-run health insurance plan that would exist alongside today's insurance options, supplementing employer coverage, Obamacare, Medicare, and Medicaid without fully displacing them. Indeed, should Democrats win both Congress and the White House, the proposal of a public option is, at this point, far more likely than a big push for Sanders-style Medicare for All. 

The public option was a feature of several early drafts of Obamacare, but was dropped from the final bill, primarily due to opposition from then-Sen. Joe Lieberman of Connecticut. So it's no surprise that the presidential race's most prominent public option backer is former vice president and current Democratic frontrunner Joe Biden, whose health care proposal has been billed as both an update to Obamacare and a moderate alternative to Sanders' single-payer plan. 

A public option would probably be less radical, less disruptive, and, on paper, less expensive for the government than Sanders' Medicare for All proposal. Yet it would still pose real challenges in terms of cost and political viability.

Although the final text of Obamacare didn't include a full-fledged public plan, it did include a substitute in the form of funding for nonprofit insurance co-ops. As the health care law was being drafted, members of the Obama administration, including President Barack Obama himself, made clear that they saw little difference between the two systems: "You could theoretically design a co-op plan that had the same attributes as a public plan," then–Health and Human Services Secretary Kathleen Sebelius told Bloomberg. "I think in theory you can imagine a co-operative meeting that definition," Obama told Time, referring to a public option. 

Public plan proponents often pitch the idea as a way to increase insurance market competition. It wouldn't outlaw private insurers like a Sanders-style Medicare for All plan. Instead, they argue, it would force them to compete with government-run insurer that wouldn't need to make a profit and could therefore be more efficient. And, they add, if a public option pays rates comparable to Medicare's—which tend to be much lower than the rates—then cost estimates indicate the plan could actually save the federal government money, reducing the federal budget deficit by more than $100 billion over a decade. 

This was the basic argument for Obamacare's co-ops as well. Yet by and large, they were failures. The health law called for $6 billion in federal funding to help start these nonprofits, a figure that was eventually whittled down to about $2.4 billion. More than 20 were launched. By 2016, 17 had collapsed, leaving hundreds of thousands of beneficiaries without coverage. In every case, the reason was simple fiscal math: The co-ops couldn't bring in enough premium revenue to cover medical expenses. 

If you view the co-ops as test cases for a public option, there are lessons to be learned from these failures: Launching a new health insurance plan at reasonably competitive rates that also bring in enough money to pay the bills is difficult, even with billions in federal funding at your disposal. There's little reason to think that a federally backed public option would fare any better, especially since lawmakers would face considerable political pressure to keep premiums artificially low. 

There's a crucial difference, of course, between a government-subsidized insurer run as a nonprofit and an entirely government-run health insurance plan. When Obamacare's co-ops ran out of money, they shut down. A national public plan might conceivably continue to operate at a loss forever, with taxpayers making up the difference. Medicare's long-looming insolvency—currently set for 2026—makes clear that long-term actuarial soundness is no requirement for a government health care program. 

And a public option's costs could be greater than Medicare's, since it there would be considerable political pressure to pay higher rates. 

That's what happened in Washington, the only state to implement a public option. As The New York Times reported in June, state legislators originally wanted to set up a state-run health insurance plan that would pay the same rates as Medicare. But that would have represented a steep reduction from the rates paid by private insurance; Obamacare plans, for example, paid about 174 percent of Medicare rates. Doctors and hospitals pushed back against the proposal, and lawmakers eventually gave in, passing a plan that paid 160 percent of Medicare rates. 

As the bill's sponsor, state Sen. David Frockt (D–46th District), told the Times, that concession was the only way to get the bill over the finish line. "I don't think the bill would have passed at Medicare rates," he said. "I think having the Medicare-plus rates was crucial to getting the final few votes." 

Biden isn't the only prominent Democrat to back a public option. Influential Senate Democrats—who would presumably end up crafting much of any actual legislation—have been touting the idea recently too, saying that they no longer worry about trying to appease their Republican opponents. 

But the problems and complications with building a new government-run insurance plan aren't exclusively a matter of Republican obstructionism. Hospitals and doctors will lobby for higher rates under any circumstance, and designing insurance that is actuarially sound while offering competitive benefits and pricing will be a challenge no matter what. In other words, it would still come with plenty of potential pitfalls—and so far, Democrats appear to have few if any plans to deal with them. 

Finally, there is the matter of the public option's place in the health care debate as the sensible, pragmatic fallback position for those who see Medicare for All as too much, too soon. Biden and others are pitching the idea as a moderate alternative to single-payer, but this is a relative comparison that works only because Medicare for All is even more radical. A public option might be less immediately disruptive than a full-stop single-payer overhaul, but it would still substantially increase the feds' role in financing health care. Over time, it would expand and extend the federal government's control over the system, giving both Congress and the executive branch another means with which to influence the delivery of health care. It wouldn't quite be a government takeover, but the government would certainly tighten its grip. 

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  1. I really don’t understand how–after so many years of examples–anyone* really thinks that centralizing everything to one entity is a good idea. In nearly any other case, people are upset about a monopoly, and identify problems with such, including poor customer service, high prices, and other problems, not to mention lack of innovation. But here, it magically works? what?

    * I mean people besides rent-seekers who would benefit from the policy.

    1. I don’ get why Reason is way more upset over tariffs than this stuff but “libertarianism” seems to have become an inherently silly belief system with no usefulness in reality.

      1. Ok, well…….bye

      2. Because the present government threatens that kind of liberty more than health care liberty. I’ve been reading Reason since ca. 2005, and they have generally written in opposition to current infringements on liberty. Why is that surprising?

        1. That’s exactly what they do. They focus on who is currently in power. In 2009 Reason went after PPACA constantly. Just like they went after the bailouts constantly in 2008 and went after the Iraq war constantly before that. They are consistent in their focus on opposing whichever party most recently lied its way into power.

    2. You do realize that you are talking about insurance. The innovation you are talking about in that realm are the creative ways to part customers with their money while paying for less medicine.

      It’s about centralizing the way we pay for medicine and then forcing providers of medicine to get innovative in the way they can provide good medicine under realistic prices. Sorry, but your knee surgeon wants to buy a yacht for his second home he had better find a way to streamline the way he delivers care without sacrificing quality.

      1. You do realize that you are talking about insurance. .

        No, not really. Insurance is a part of it, but not all of it. There are innovative way to arrange payment besides insurance (like so-called concierge care, and even charity care). There are also innovative insurance strategies that help both consumer and provider. For instance, life insurance companies have floated the idea of paying for life-saving treatment, as that saves them money, too. I’ll stop here on the examples, since my only point is that it’s best to not restrict innovation to a single central group. Imagine in this monopolistic that you and I have a cool idea like this. We are forbidden from trying! Conversely, if the “experts” are doing something wrong the whole country suffers!

        Any system that forces you in–that is, doesn’t have an opt-out–is very bad.

      2. Heraclitus
        September.5.2019 at 2:45 pm
        “You do realize that you are talking about insurance….”

        There are plenty of fucking left ignoramuses who are more than willing to fall for this line of bullshit. We know, ’cause some post here to prove how gullible fucking lefty ignoramuses can be.

      3. You moron, insurance companies force your yachting surgeon to accept ever more less per knee, they aren’t in cahoots to bilk the customer. You don’t even have a slight understanding of the issue

  2. Sorry Reason, I’m not buying it. Our decentralized system is a mess. Classic free-market principles do not apply and it is creating all kinds of negative externalities and inefficiencies not to mention social injustices. The point of a public option is to create a big enough entituy so that it can create leverage so that it can force the medical-industrial complex to produce good medicine with less cost. Our current system is based on an insurance model where efficiency, from the point-of-view of the insurers, is covering less actual medicine. The more claims they can deny the more money they make. It’s at complete odds with what actual living humans need.

    1. Sorry Reason, I’m not buying it. Our decentralized system is a mess.

      And yet, our medical schools are the envy of the world, our drug companies innovate and put out new products every week, and people fly here for treatment of their health issues. Your comment reminded me of a comment I read once (forgot who said it, Churchill?): Democracy is the worst form of government, except for all the others.

      I don’t think Medicare-4-All is the way to go. I do not trust the Federal Government enough to put my healthcare into their hands.

      1. Medical schools are funded by federal and state governments, as well as tuition. Not a good argument for a more decentralized system.

        Basic drug discovery research is funded primarily by government and philanthropic organizations. Drug companies only do the later stage development/clinical trials, after finding out from the government funded work what is likely to be effective. Here is a source: https://www.ncbi.nlm.nih.gov/books/NBK50972/ . Again, not a good argument for a more decentralized system.

        I find it easier to believe that we have cutting-edge medicine because of a centralized effort to fund medical research (e.g. NIH, DARPA) and medical education. The problem, of course, is that many American people have no hope of accessing this high tier of medical care.

        1. Vanderbilt? Duke? Johns Hopkins? Which governments funded them?

          1. https://www.genengnews.com/a-lists/top-50-nih-funded-institutions-of-2018/

            23. Vanderbilt University Medical Center
            $97,389,230 toward 197 awards

            15. Duke University
            $160,584,837 toward 315 awards

            and the #1 “taker” of socialist handouts from the hard working taxpayer?

            1. Johns Hopkins University
            $267,338,120 toward 519 awards

          2. Fair point: private medical schools do not receive the same level of government appropriations as public schools for operating costs. But even for private schools, the vast majority of all medical research and research education that takes place is funded via government grants.

      2. Single-payer may not be the way to go, but our decentralized system is a mess in many ways. It’s true that our mess of a system has led the world in medical breakthroughs. Costs – for care, insurance, and the administrative burdens on the whole system – seem to be marching on to levels that will be unsustainable – at least only sustainable for those fortunate to have the resources. Employer provided health insurance – a key part of our system (in addition to Medicare) has been feeling the strain more and more – and in many cases, deductibles have gone up dramatically. That’s okay in many ways, but the costs continue to go up – and the worker’s share of premiums will continue to increase in spite of higher deductibles. I won’t be surprised when companies re-think their wage decisions. Sorry Mr. potential employee – the salary for this position isn’t what you hoped because the health insurance benefit is so costly for us.

    2. Because we don’t have a decentralized system. We have extremely centrally regulated insurance companies, and indeed the worst part of the whole system is the centrally-planned Medicare/Medicaid entitlements!

    3. Nevermind that most of the horrible inefficiencies in our current system are created by government in the first place. Surely, more government will fix those government created problems!

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  4. There’s little reason to think that a federally backed public option would fare any better, especially since lawmakers would face considerable political pressure to keep premiums artificially low.

    Make it an option for government employees. If they can convince most government workers to swap over, that’s a pretty hefty market-share that should keep it stable regardless of buy-in from elsewhere.

    1. Why force Taxpayers to pay for it. If government employees want it, let them foot the bill.

      1. … in what world do you live in where employees don’t pay for their health insurance?

        1. They do but the advantage is that employers can get better rates than individuals. This is true for things like life and disability insurance as well which may be included or optional add ons.

  5. Hold on a minute. I was told that PPACA would fix the healthcare system for good. Why do we need to fix it again if it was already fixed for good?

  6. Just call it what it would be: “VA Care for All”.

  7. How about do nothing? Anything further the government does is likely to cause more harm than good so follow the medical principle of do no harm.

  8. Government run healthcare is a must in any socialist slave state.
    Just ask Lenin.

  9. If the government thinks it can compete (ostensibly to help control costs), with the existing private for-profit and private non-profit insurance companies, well, go for it, I might not object to it. BUT, and this is BIG but, it will have to survive on it’s own, without any “special” government involvement, and, of course, it will have to operate under the same rules and regulations as do the private companies. And, if somebody thinks the government can somehow invent an insurance company that is more efficient than the nearly 6000 companies we now have, well, I have this seaside property in Kansas offered at a real great price…..

  10. Suderman apparently doesnt lnow Insurance is already government run. By theFeds and all 50 states. Everything from product design to pricing to now profit margins being capped.

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