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Obama: Soft on Health Insurance? Part 2More on whether Obama's backing away from real health care reform.

By Timothy NoahPosted Wednesday, March 11, 2009, at 2:20 PM ET

(Continued from page 1)

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These may be the factors Obama had in mind when he said, "[P]rivate insurance plans might end up feeling overwhelmed." But it's hard to feel too sorry for private health insurance companies. Through mergers, they've been expanding market share at a pretty smart clip themselves. According to a 2007 study by the American Medical Association, in 96 percent of the country's metropolitan statistical areas, there exists at least one private insurer with at least a 30 percent share of the commercial market. Medicare and Medicaid cost-shifting may account for 12 percent of the cost increase in private health insurance, but what accounts for the other 88 percent? While Medicare has put the squeeze on doctors and hospitals, insurers have put the squeeze on policyholders.

Hacker has lately been wrestling with the question of how to create a level playing field for private and public health insurance plans, and he graciously showed me a draft paper touching on this problem. I am not convinced, after reading it, that he cares much more about it than I do. "Everyone says they are for a level playing field," he writes, "but what most critics of the public plan idea really mean is that they do not want a new public health insurance plan to have any inherent advantages." True competition, Hacker writes, "does not require competitors be equal" but rather "that they have an equal chance to succeed if they are equally good at doing what consumers want." Exactly.

Under the Obama plan, private health insurance companies would compete with the public plan to cover people whose employers didn't give them health coverage. These private insurance companies would receive a government subsidy in exchange for abiding by certain restrictions regarding premium increases, deductibles, etc. Hacker proposes that the subsidies be the same for the public and private plans, that rules governing premium rates and marketing be the same, that minimum benefit levels be set, and that public and private plans both be required to take all comers. "Relative disparities in plan costs" should be reflected in "the relative prices that potential enrollees see." If the Commonwealth Fund is correct, that would still make the public plan 20 percent to 30 percent cheaper than the private.

Perhaps these are the sort of concessions Obama has in mind. If so, I doubt they'll mollify conservative critics like Grassley. What will Obama do? I don't have a lot of faith that any plan to step up regulation of private health insurance will make much difference. Most such proposals, Obama's included, amount mainly to price controls, a regulatory approach that in the past hasn't worked very well. Health insurers should know this better than almost anyone. Employer-based health insurance owes its very existence to wage controls put in place during World War II. Barred from negotiating over wages, employers offered employees health insurance instead.

Jettison the public plan and you've pretty much given up on health care reform. If we try to regulate our way out of this mess, the best true reformers can hope for is that the private health care system spins quickly out of control, forcing a government takeover—a plausible scenario, in my view. Better to skip any interim step where we make things worse before we make things better. Here's hoping Obama's seeming willingness to compromise on the public plan, as expressed at the White House forum, was insincere. Politeness on this point would be acceptable. Flexibility would not.

[Update, 2:40: Shortly after I filed this Hacker forwarded me an interview from Feb. 2009 in which he outlined three reasons to believe the public plan wouldn't kill off the private health insurance policies they would compete against under the Obama campaign plan: