Why critics of a public option for healthcare are wrong

Those opposing a public option -- Big Pharma, the AMA, the insurers -- are doing so out of economic self-interest


Robert Reich
June 24, 2009 3:25PM (UTC)

Without a public option, the other parties that comprise America's non-system of healthcare -- private insurers, doctors, hospitals, drug companies and medical suppliers -- have little or no incentive to supply high-quality care at a lower cost than they do now.

Which is precisely why the public option has become such a lightning rod. The American Medical Association is dead set against it, Big Pharma rejects it out of hand, and the biggest insurance companies won't consider it. No other issue in the current healthcare debate is as fiercely opposed by the medical establishment and their lobbies now swarming over Capitol Hill. Of course they don't want it. A public option would squeeze their profits and force them to undertake major reforms. That's the whole point.

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Critics say the public option is really a Trojan Horse for a government takeover of all of health insurance. But nothing could be further from the truth. It's an option. No one has to choose it. Individuals and families will merely be invited to compare costs and outcomes. Presumably they will choose the public plan only if it offers them and their families the best deal -- more and better healthcare for less.

Private insurers say a public option would have an unfair advantage in achieving this goal. Being the one public plan, it will have large economies of scale that will enable it to negotiate more favorable terms with pharmaceutical companies and other providers. But why, exactly, is this unfair? Isn't the whole point of cost containment to provide the public with healthcare on more favorable terms? If the public plan negotiates better terms -- thereby demonstrating that drug companies and other providers can meet them -- private plans could seek similar deals.

But, say the critics, the public plan starts off with an unfair advantage because it's likely to have lower administrative costs. That may be true -- Medicare's administrative costs per enrollee are a small fraction of typical private insurance costs -- but here again, why exactly is this unfair? Isn't one of the goals of healthcare cost containment to lower administrative costs? If the public option pushes private plans to trim their bureaucracies and become more efficient, that's fine.

Critics complain that a public plan has an inherent advantage over private plans because the public plan won't have to show profits. But plenty of private plans are already not-for-profit. And if nonprofit plans can offer high-quality healthcare more cheaply than for-profit plans, why should for-profit plans be coddled? The public plan would merely force profit-making private plans to take whatever steps were necessary to become more competitive. Once again, that's a plus.

Critics charge that the public plan will be subsidized by the government. Here they have their facts wrong. Under every plan that's being discussed on Capitol Hill, subsidies go to individuals and families who need them in order to afford healthcare, not to a public plan. Individuals and families use the subsidies to shop for the best care they can find. They're free to choose the public plan, but that's only one option. They could take their subsidy and buy a private plan just as easily. Legislation should also make crystal clear that the public plan, for its part, may not dip into general revenues to cover its costs. It must pay for itself. And any government entity that oversees the health-insurance pool or acts as referee in setting ground rules for all plans must not favor the public plan.

Finally, critics say that because of its breadth and national reach, the public plan will be able to collect and analyze patient information on a large scale to discover the best ways to improve care. The public plan might even allow clinicians who form accountable-care organizations to keep a portion of the savings they generate. Those opposed to a public option ask how private plans can ever compete with all this. The answer is they can and should. It's the only way we have a prayer of taming healthcare costs. But here's some good news for the private plans. The information gleaned by the public plan about best practices will be made available to the private plans as they try to achieve the same or better outputs.

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As a practical matter, the choice people make between private plans and a public one is likely to function as a check on both. Such competition will encourage private plans to do better -- offering more value at less cost. At the same time, it will encourage the public plan to be as flexible as possible. In this way, private and public plans will offer one another benchmarks of what's possible and desirable.

Mr. Obama says he wants a public plan. But the strength of the opposition to it, along with his own commitment to making the emerging bill "bipartisan," is leading toward some oddball compromises. One would substitute nonprofit health insurance cooperatives for a public plan. But such cooperatives would lack the scale and authority to negotiate lower rates with drug companies and other providers, collect wide data on outcomes, or effect major change in the system.

Another emerging compromise is to hold off on a public option altogether unless or until private insurers fail to meet some targets for expanding coverage and lowering healthcare costs years from now. But without a public option from the start, private insurers won't have the incentives or systemwide model they need to reach these targets. And in politics, years from now usually means never.

To get healthcare moving again in Congress, the president will have to be clear about how to deal with its costs and whether and how a public plan is to be included as an option. The two are intimately related. Enough talk. He should come out swinging for the public option. 

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Robert Reich

Robert B. Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies. He served as Secretary of Labor in the Clinton administration, for which Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century. He has written 15 books, including the best sellers "Aftershock", "The Work of Nations," and"Beyond Outrage," and, his most recent, "The Common Good." He is also a founding editor of the American Prospect magazine, chairman of Common Cause, a member of the American Academy of Arts and Sciences, and co-creator of the award-winning documentary, "Inequality For All." He's also co-creator of the Netflix original documentary "Saving Capitalism."

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