Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

11 September 2009

The Public Option


New York Times pundit David Brooks is a conservative whom I respect. He’s thoughtful, honest and usually non-ideological. But lately he’s repeated something that has to be wrong.

He’s said that the President’s endorsement of the public option in his brilliant speech Wednesday was a feint—a sop to liberals that the Administration has no intention of carrying through. Brooks said this twice: once in his commentary on PBS just after the speech, and again in his column yesterday. The language he used yesterday was particularly pungent; he said, “On Wednesday, the president praised [the public option], then effectively buried it. White House officials no longer mask their exasperation with the liberal obsession on this issue.”

Brooks is a reporter as well as a columnist. He has access to sources near the top. So he may know something that I don’t know. But if he’s right, then a whole lot of people—way beyond the President’s progressive base—ought to be unhappy.

Here are five reasons why what Brooks thinks had better be wrong.

First and foremost, if Brooks is right, the President would have betrayed his strongest supporters. It would be one thing for him to make a speech praising the public option, explaining why opposition in Congress makes it impossible, and proposing a viable substitute that improves the bargain for consumers and serves some of the same ends. It would be quite another thing for the President to endorse the public option so publicly and not mean what he says.

That would be, in essence, a lie—a bait-and-switch tactic entirely out of character for the President. Up to now, Barack Obama has always been honest with us the people and treated us as adults, as he did in his famous speech on race in Philadelphia. It would be dumb politics, as well as out of character, for the President to betray the people, let alone his best supporters, so badly. I’ve never seen Barack Obama do anything like that, whether as senator, candidate or president.

Second, the president has expressed strong admiration for government-run systems that work well since the very beginning. His May 2007 speech on health care as a candidate lauded Medicare and its successes, as well as Harry Truman, who supported government-sponsored insurance. That praise seemed genuine at the time; I don’t think it was a sop for liberals, but a problem-solver’s endorsement of a solution that works.

The third reason is where people from all political persuasions come in, or ought to. Without the public option, the President’s proposal has nothing to hold down health-care costs. The President promised not to increase the deficit, and I expect Congress to hold him to that promise. But holding down government expense (mostly for subsidies to individuals mandated to buy insurance) is not the same as taming the explosive growth of health-care costs and health-insurance premiums, which everyone agrees could break this country.

The right, left and center all agree that real competition in health insurance could hold down prices for premiums and (through insurers’ pressure on providers) maybe even for health care. So do economists; that’s Economics 1A. The trouble is, there is virtually no real competition in the health-insurance industry right now. Two earlier posts explain why that is so as a matter of both economic theory and visible results in the marketplace (Item 2). I won’t repeat that analysis here. But the President himself referred to the lack of competition in the insurance marketplace in the following words:
“So let me set the record straight. My guiding principle is, and always has been, that consumers do better when there is choice and competition. Unfortunately, in 34 states, 75% of the insurance market is controlled by five or fewer companies. In Alabama, almost 90% is controlled by just one company. Without competition, the price of insurance goes up and the quality goes down.”
The President gets it. Why would he decry the lack of competition and do nothing about it?

He didn’t propose any of the standard solutions that economists dream up. He didn’t endorse ending state-by-state regulation and creating a national market. He didn’t propose standardizing insurance terms so that consumers and employers can comparison shop and health insurers have to compete on price and service, rather than hiding the ball of what they offer in incomprehensible fine print. But he did propose a public option (end of page).

The public option the President proposed was quite limited. He made clear that the government would not support it with subsidies; it would have to stand on its own, like the U.S. Postal Service. But because it would be non-profit, it would gives us a practical gauge—a direct experiment, if you will—showing how much relying on for-profit insurance hurts us as consumers and as a nation.

As an entrepreneurial problem solver and gradualist (here I agree with Brooks’ characterization of the President), the President wants to start small. In addition to not subsidizing the public option’s insurance, the President would limit it to consumers who could not otherwise find insurance. He quoted (bottom of page) an estimate of 5% of the marketplace, probably including mostly the poor—people whom mandates would force to buy insurance but who can’t afford anything on the market today.

That brings us to the fourth reason why the President can’t have feinted as Brooks believes. What the President didn’t mention is obvious if you think about it. A non-subsidized, non-profit government-managed insurer would differ from private insurers in only one important respect: the profit motive.

For years private insurers have assured us they are just as efficient as any government-run program. They’ve never proved it; Medicare is several times as efficient, year after year. Maybe if private insurers really tightened their belts, they could reduce their administrative costs from 10% to 17% to the level of Medicare’s—about 4%. Whether they can remains to be seen, because none has yet done it.

But one thing private insurers can’t do is run without profit, which is their reason for being. So if consumers find a public option more attractive—if it offers lower prices and better service that private insurers can’t match despite heroic effort—the reason will be the profit that private insurers demand. If private insurers can’t compete with a hands-tied-around-its-back public option that is not subsidized and limited to people who can’t otherwise afford insurance, their failure to do so will be an experimental repudiation of the profit system on which our current health-insurance market is based.

Private health insurers know this. That’s why they fear a public option more than death—even one as anemic as what the President has proposed. They themselves think their for-profit model may be fatally flawed in advancing the general welfare. But you’ll never hear them say that; they’d rather scare the rubes with talk of a government “takeover.”

The final reason why the President can’t have meant to praise and abandon the public option is that doing so would be a complete capitulation to private insurers. The mandates that the President proposes would force millions of new customers into private insurers’ arms. Not only that: the government’s subsidies would pay for many of those new customers’ insurance. The government would (really, will) be putting part of our tax dollars, in subsidies, indirectly into insurers’ pockets as profits.

In other words, the combination of mandates and subsidies in the President’s plan would provide a massive indirect subsidy to private insurers. Our tax dollars would become their profits. What’s there for an insurer not to like?

But the President’s plan was supposed to be a grand bargain. Insurers would get millions of new customers, part of them financed with our tax dollars. We the people would get something in return, a quid pro quo.

Without the public option, the quid pro quo is laughably thin. All we the people would get is a prohibition on excluding pre-existing conditions and a guarantee of keeping our insurance if we got sick. We wouldn’t get portability. We wouldn’t get more competition in private health insurance. We wouldn’t get anything the puts real pressure on private insurers to drive down prices and improve service. That’s much too thin a bargain for any American who doesn’t work for (or have lots of stock in) a private health insurer to accept.

So I hope and believe that Brooks and his sources are wrong. The bait-and-switch that Brooks sees in the President’s speech would be a gross betrayal, but not just of the liberals and progressives who helped elect the President. It would betray every consumer with health insurance, down to the right-wing nut cases. And it would transform the President from problem-solver-in-chief to marketer-in-chief, Dubya redux. It would mean surrendering to the health insurers and declaring victory.

I can’t believe that Barack Obama would allow himself to undergo such a transformation or create such a charade or that anyone in his administration would countenance doing so. Far more likely, Brooks misinterpreted his sources, saw only one side of an internal debate, or heard what he wanted to hear.

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