The Great Health Care Debate: For the Public Option

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Author: Eeshan Seth

The proposal for a “public option” as a critical component of health care reform is, at best, a dangerous distraction. As Richard M. Thaler, a professor of economics at the University of Chicago, has written, the public option “is neither necessary nor sufficient for achieving the real goals of reform, and those goals are too important to risk losing the war.” This is the fundamental assertion that must be realized in the debate on health care reform.

One of the most oft-cited arguments for the public option is that it will provide the competition needed to push the commercial health care industry to start providing more affordable health care. President Obama has said that, in an effort to provide fair competition, the public plan would have to be “self-sufficient and rely on the premiums it collects.” In essence, the public option in President Obama’s plan is a government-run, not-for-profit entity.

As Gregory Mankiw, a professor of economics at Harvard, surmises: If this plan were actually workable or worth having, then “nothing would stop someone from setting it up right now.” The public option is one more non-profit health care insurance provider. If President Obama is being truthful, then the public option would rely entirely on its own business, just like every other non-profit insurance provider. In addition, given the government’s abysmal record of progress on crucial issues and its reticence toward new technology, the non-profit work should be left to the already plentiful non-profit groups or, as others have suggested, new local cooperatives.

Some suggest that despite all of this, the government option would be able to lower the cost of health insurance for ordinary people by bringing down administrative and other operating costs as Medicare has done. However, in an article in The New England Journal of Medicine, prominent American health economist Victor Fuchs argues that the new public option would have extra administrative and marketing costs that do not apply to Medicare with its “captive market.” All these additional costs must be met with independently-generated revenue from the public option.

This brings me to my second point: the problem of government aid. While the public option described in President Obama’s speech last Wednesday evening would not receive any government aid, it is almost certain that it would do so in practice. At the beginning of the financial crash, Fannie Mae and Freddie Mac were private mortgage giants created by federal law. At the first hint of trouble, though, the federal government backed up the companies’ debts with a financial bailout as big as any. Even then, would it ever be politically tenable for anyone to refuse to support a troubled non-profit public option that provided health insurance for a few million people?

Given this, the public option, with the backing of taxpayer dollars, would be unable to provide the kind of competition that would be crucial to forcing insurance companies to be more fair with their insurance plans. As President Obama said in his speech, the plan would be unfair “if taxpayers were subsidizing this public insurance option.” In addition, he noticed that America will “eventually be spending more on Medicare and Medicaid than every other government program combined” if the current cost situation was not altered.

I am not concerned about a government takeover of health care or the scope of the federal apparatus. The public option is no way to reform health care. While everyone recognizes that costs will rise if something does not change about the way Medicare and insurance companies function, the public option, by virtue of being an extension of the status quo, has no plans to actually reduce costs while expanding service. It also has no plans to help make health care safer and better by engaging and reforming the practices of those providing health care- from doctors to administrators.

One should not expect too much from the public option other than the uncalculatable cost of sustaining it. The president has talked eloquently about the unfairness and injustice of the current set-up. But the public option remains a vehicle incapable of fundamentally changing the cruel status quo, which is a depressing shame.

Eeshan Seth is an undeclared fist-year. He can be reached at seth@oxy.edu.

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