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Posts Tagged ‘Public Option’

Last night’s train-wreck debate reinforced my disdain for politicians.

But let’s ignore the immature theatrics from Trump and Biden and focus on one of their policy disagreements.

The two candidates squabbled over whether creating a government-administered health plan (see page 31 for a description of Biden’s so-called  “public option“) would lead to the demise of the current system of employer-provided health insurance.

For what it’s worth, there are two big reasons why I’m not a fan of the current employer-based system.

That being said, I’m very aware of the fact that politicians are always capable of making things worse (the “lather-rinse-repeat cycle” of government failure).

So let’s consider this key question: Government intervention has made our health system expensive and inefficient, but would a “public option” make things better or worse?

About two months ago, I shared this video which explains why the so-called public option will wind up being an expensive boondoggle.

Given the track record of health entitlements, I think the video you just watched is correct. A public option would be a fiscal nightmare.

But does that mean it also would be a threat to the employer-based system of private health insurance?

I think the answer is yes, largely because the subsidies that will make the system more expensive are also the subsidies that will make the public option seem like a good deal.

Let’s use two analogies to get this point across.

  • Fannie Mae and Freddie Mac dominate housing finance, not because government-created entities are efficient, but because they use subsidies from the federal government to under-price private competitors.
  • Parents know private schools produce much better educational outcomes than government schools, but most families opt for the inferior option because it’s already being financed by their tax dollars.

I fear the same thing will happen with the so-called public option. Politicians (in their never-ending efforts to but votes) will keep increasing the subsidies. That will make employer-based health plans seem less attractive by comparison.

And there will also be political pressure to provide an ever-more-extensive set of benefits (as illustrated by the cartoon). That will also make employer-based health plans seem less attractive by comparison.

The net result of all this is that even though the vast majority of workers are happy with their current employer-provided health plans, Biden’s public option will slowly but surely squeeze them out of the market.

The bottom line is that we’ll wind up with single-payer, government-run healthcare, but politicians would be sneaking it in the back door.

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Even though Joe Biden has embraced a very left-wing agenda, I suspect many of the items on his wish list are designed to placate Bernie-type activists who have considerable influence in the Democratic Party.

As such, I don’t think Biden will push “Medicare for All” if he’s elected. But I fear he may support a “public option” that is less radical but still misguided.

The strongest argument in the video is that a government-created competitor to private insurance companies will be much more expensive than politicians are promising.

This is what always happens with government programs (see Medicare, Medicaid, and Obamacare) because politicians have a never-ending incentive to buy votes with other people’s money. And it will happen with any new program.

But I think the video overlooks an argument that would be even more politically effective, which is the fact that a public option would slowly but surely begin to strangle employer-based health insurance.

Simply stated, vote-buying politicians will deliberately under-price the cost of the public option. And the presence of a subsidized and under-priced government health plan will make employer-based policies less attractive over time – especially since the subsidies almost certainly will expand.

However, people generally like their employer-based health plans and presumably will be skeptical of any plan that threatens that system (and it’s probably safe to assume that health insurance companies will have an incentive to educate people about that likely outcome).

By the way, it’s not my intention to defend the employer-based system, which largely exists because of a foolish loophole in the tax code. As far as I’m concerned, that system is a convoluted and inefficient mess that has contributed to the health care system’s third-party payer crisis.

What we need is a restoration of free markets in health care.

But with the public option, the best-case scenario is that many people over time will get pushed from the top line of this image to the bottom line.

And that’s also the worst-case scenario since no problems will be fixed, but overall costs will be even higher thanks to greater government involvement.

For what it’s worth, some advocates of the public option claim it can actually save money by lowering reimbursement rates to doctors and hospitals. That could happen in theory, but exploding costs for Medicare, Medicaid, and Obamacare show that it doesn’t happen in reality.

The bottom line is that more government intervention in health care won’t solve the problems caused by existing levels of government intervention in health care (a tragic example of Mitchell’s Law). Which is why I fear that the public option ultimately would be a slow-motion version of Medicare for All.

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