As a health care non-maven, I have four problems with the New Republic's strangely ungalvanizing description of a world without a "public option":
1) Jacob Hacker and Rahul Rajkumar suggest that, without a public option, a "59-year-old self-employed man with diabetes, or a 48-year-old single mother with breast cancer" won't be able to find private insurance "they can afford." But under the Dem reform plan, even without a public option, wouldn't "[i]nsurance companies ...be required to offer the same coverage to everyone, regardless of medical history"? If so, why won't these 59-year-olds with diabetes be able to find plans they can afford as much as 59-year-olds without diabetes? Is it because private insurers will resort to subtle tricks--e.g. offering free workout rooms, or long steep stairways--to attract only the healthiest customers? Which brings us to ...
2) The existence of a public plan--sustained "completely through enrollee premiums and federal premium assistance"-- is supposed to "keep the private insurers honest" and "control costs." OK. Suppose the public plan uses its purchasing power and lower administrative expenses to cut its prices to 20% below the leading private plans. What will the private plan do? Will it match the public plan by cutting costs--or pursue even more vigorously subterranean strategies to cherrypick the healthiest customers with perks ? Or a combination of both? Clearly, faced with pressure on profits, it can respond with "good" behavior or "bad" behavior. But if we could rely on private insurers to have only "good" responses, we wouldn't need health care reform, right?
3) What of the 59-year-olds with diabetes? Well, they always have the non-cherrypicking public plan! Which they will presumably choose, raising the public plan's costs. So there are two forces at work on the public plan's pricing.
One lowers costs , perhaps--an ability to forego administrative and marketing expenses and an impulse to use purchasing leverage to bid down payments to doctors and hospitals.
One raises costs --the tendency of public plans to attract the sickest patients.
Which of these forces will be greater? I don't know. But Hacker and Rajkumar don't tell me. It's not inconceivable that the public plan will confront a vicious circle of adverse selection , in which it attracts sick patients, driving up costs and premiums, which causes healthy patients to flee, requiring even more premium hikes, etc.--right? Remember that according to Hacker & Rajkumar the public plans will operate on a level playing field with no special subsidies from the government. If they have higher costs how are they going to avoid charging higher prices? And then how are they going to keep the private plans "honest"?
4) TNR 's whole disaster scenario--what will happen if there's no public plan to provide competition--seems beside the point. If the disaster starts to happen, we can always set up the public plans later, no?
What am I missing? ... P.S.: I'm still for a "public" alternative, just so everyone has the security of knowing there's at least one insurer they can go to who won't try to game them out of coverage in the fine print of a 25 page agreement . I just don't understand how the economics is supposed to work. ... 9:00 P.M.
Has Steve Rattner gone native ? ... 11:59 P.M.