July 28, 2009

July 28, 2009 | Commentary on Health Care

The Case Against: The Public Plan Will Unfairly Crowd Out Private Coverage

I've spent the last 30 years trying to achieve affordable health coverage for all Americans, so it's frustrating to see the obsession with a "public plan" making it impossible for reasonable people from both parties to come together. "The fixation on a public plan is bizarre and counterproductive," The Washington Post put it recently in an editorial. "It would be a huge mistake for the left to torpedo reform over this question."

Why does such a seemingly benign idea pose such a dire threat? Because supporters are disingenuous about their real goals and about how it would really work. The arguments for a public option as the only way to achieve certain objectives just don't stack up.

One argument is that a government-sponsored plan is needed so that Americans with modest income and chronic medical problems -- the kind of people who are literally uninsurable -- can be assured of getting coverage.

But this overlooks everything else that has already been agreed. There's bipartisan support for subsidies and health exchanges to assure portable, affordable coverage. Even the health insurance industry would accept revamped regulation to limit premium variation so that sicker people can get coverage. And we've made great progress in recent years with reinsurance and risk adjustment mechanisms to handle high-risk people.

A public plan does nothing to advance on this. It is anathema to many of the very people who are in agreement and just throws a monkey wrench into the discussion.

A second claim is that a public plan would be a lean, mean competing machine, modeled on Medicare. It would use its size and clout to get the best deal for working Americans and force private plans cut costs or go out of business.

But advocates of this vision don't hide what they expect -- and even desire -- to happen. Gradually "Medicare for All" would crowd out most private coverage, paving the way for a cradle-to-grave single payer system.

Now, I lived under one in Britain for 30 years and I'm glad I don't now. I don't think Americans want that system. Still, maybe I'm wrong and they would support a single payer system after an honest national debate. But the "public option" proposal is just a dishonest sneak end-run around that needed debate.

Far from being merely an option, a Medicare-style public plan would unleash a dynamic that is not what Americans thought they were voting for last November. They were assured that if they are happy with the coverage they had then nothing would change with a public option.

But there would actually be big changes for many already insured people. Faced with a low-cost public option, many employers would simply close down their existing plan and push their employees into the public plan. Remember that Wal-Mart encouraged eligible employees to sign up for Medicaid, until states and unions thwarted them. All serious analysts agree that many Americans would find themselves dumped into the public plan.

The respected Lewin Group estimates that under the latest House bill, as many as 103 million Americans could end up in the public plan, with 88 million of these -- almost half of all those previously with employer-sponsored insurance -- dropped by their employers.

So the public plan both covers up the intent of many of its proponents and has disruptive side-effects that conflict directly with the pledge Mr. Obama has been giving.

As a response to this concern, another version calls for a more benign, soft-edged public plan, with the limited aim of making Americans simply more comfortable with a new system including private plans. The public plan would then be "just another choice" and choice is good, the argument goes. Such a plan would pay providers roughly the same rates as private plans and would live under the same rules as any other plan on a "level playing field." No special advantages. No open door to the Treasury. Really just like a private plan with a government seal of approval. What's not to like?!

A lot, starting with the question of why even have this version of a public plan if it is really no different from any other. Is it worth possibly derailing health care reform for this?

Yet the claim that Americans somehow won't be comfortable with a set of competing plans in an exchange unless one of them is run by the government just doesn't carry water. For instance, while a form of public plan exists for state employees in certain states, if you take a cursory glance at state websites you will rarely see these plans ever even described as publicly administered. It turns out not to be a selling point.

It's also the case that the 10 million federal employees, members of Congress and dependents in the federal government's system (the FEHBP) are not clamoring for a public plan. There is no public plan in the FEHBP.

But the reason to avoid this version shouldn't be hard for anyone who has spent time in Washington to grasp. It's simply impossible to believe the claims by Sen. Charles Schumer (D-N.Y.) and others that Congress really will do nothing to disrupt the level playing field by favoring the public plan. With Congress as both umpire and a team manager, one thing is clear: it will favor its own team. The result is the public plan will unfairly crowd out private coverage.

This is why there's a tsunami of cynicism about a public plan among those of us who know how Washington works and are trying to build the broadly-based agreement needed for serious reform to be achieved and sustained. At best the public plan is a distraction from this effort. At worst, and more likely, it will kill the chances of successful reform. It's time for President Obama to pull the plug on the public "option."

Stuart M. Butler, Ph.D., is Vice President for Domestic and Economic Policy Studies at The Heritage Foundation.

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First Appeared in Politico