Nate Silver defends the public option

Erik Kain

Erik writes about video games at Forbes and politics at Mother Jones. He's the contributor of The League though he hasn't written much here lately. He can be found occasionally composing 140 character cultural analysis on Twitter.

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21 Responses

  1. There’s nothing wrong with his picture – his diagnosis of the problem is precisely the same as the diagnosis that just about everyone – free market advocates and single-payer proponents included – has been giving. The big problem is that our health insurance system is employer-based thanks to the tax incentives, which creates a system that is very much the worst of both worlds. The question is how to solve that problem – most libertarians say just eliminate the employer tax incentives and maybe transfer them to individuals. And the fact is, for many, even most, people, this change would be a vast improvement. The question then becomes what to do about those people who are not aided by this change, because there will certainly be a number of those who still can’t afford any kind of real health insurance. My position on that is that you can expand existing means-tested government programs, although you should simultaneously look into how to make those programs more efficient.

    The thing is that the insurance companies will likely be strongly opposed to either avenue, because both create competition. The difference is that the public option adds only one new competitor (albeit one that will immediately have the capacity to drastically undercut existing insurers), while the elimination/alteration of the tax incentive would likely add many for reasons similar to the direct v. indirect subsidy issue I mentioned yesterday.

    That said, so far as I can tell, no proposal currently under discussion would alter the tax incentive, even though almost everyone agrees that it’s a big part of the problem. The reason for this is that not only would the insurance companies likely oppose it, but the unions are also actively opposed to it. This makes the public option, combined with some sort of employer mandate, far more politically viable – there you only need to overcome the clout of the insurance companies (which can be at least partially appeased with the mandate) and some employers (mostly small-ish businesses, who can be appeased with a small business carve-out and who aren’t overly powerful anyhow), rather than the full weight of the insurance companies and the unions. The AMA is also, so far as I can tell, opposed to just about any meaningful change to the system one way or another.

    But as far as the public option goes, I’m not overly opposed to it since the current system is so gawdawful – provided it is implemented in a cost-effective way that also introduces some real competition into the marketplace. But given the interest group politics of it all, I’m very skeptical that this will actually happen. What I am vehemently opposed to, however, is a universal single-payer system.Report

    • Okay. You’ve convinced me. I agree 100% that the real problem right now is the “shadow subsidy” in our current employer-based system. And I think there is nothing wrong with expanding and improving Medicare as Virginia Postrel wrote about recently (and SCHIP as you have mentioned) rather than jumping into a new entitlement. That said, like you, I would support a public option but I can’t see it working without at the same time undoing employer insurance…Report

      • I tend to agree, although I could see it being at least a slight improvement over the status quo even with an employer mandate.

        Unfortunately, elimination of the employer tax incentive is just not going to happen, at least not in the short run. My impression is that some advocates of a public option view that option as something of a first step towards eliminating employer-based insurance in the long run, while others view it as a step towards single-payer. To say the least, I’m skeptical, but I could be wrong.Report

  2. David says:

    I generally agree with his analysis, but I too felt like something was missing. He says that “health insurance is different” from hamburger stands, GM, and the post office because there are distortions in the market that prevent a new insurer from coming in and doing the “easy work” of offering Fredrick insurance at $350. He lists the lack of perfect information as one, but surely there are more. But isn’t this always true of markets everywhere? Why couldn’t the government run an efficient hot dog stand? Its “easy” in the sense that they are only hotdogs. There may be “information distortions” or whatever, or at least barriers to entry that prevent competition (someone more familiar with econ lingo can probably come up with a gazillion transaction costs that distort the hotdog market). Having been to many a fast food joint, I’d say “taste” and “customer service” couldn’t be much worse at a government hot dog stand compared to the private ones that exist. In other words, why is healthcare distorted in a way that other markets are not? Just to be clear, I think the healthcare market is distorted and a single payer system is best. But reading this argument from Nate, he never established why the information distortions of the health insurance market are so unique as to justify government regulation.Report

  3. mike farmer says:

    I can’t give you any advice on this — unless government got completely out of healthcare, including tax manipulation schemes, there is no libertarian solution — actually there is no pre-packaged libertarian “solution” at all, except to have a free market and let the solutions emerge through voluntary interactions. From my perspective, if we’re going to allow government to engineer the solutions, then whatever they come up with, we’ll have to live with it. Government has been deeply involved in healthcare for a long time — so long, that symptomatic tampering won’t change much. It does seem that a public option would eventually drive private insurers out of business, because they can’t compete with the lower price government will offer, and private companies can’t subsidize their losses with tax-payers’ money — plus private companies can’t regulate the rules of competition.Report

    • Well, I’m not sure the issue should be one of “what is the libertarian ideal” so much as “what would move more in the direction of libertarianism?” I know this gets into the radicalism vs. incrementalism debate that seems ever-present in libertarian circles, but, having acknowledged the problem (tax incentives, licensing laws, etc.), it strikes me as wrong-headed to then insist that any alternative solution to the ideal other than absolute removal of the government from health care is unacceptable.Report

  4. Jaybird says:

    Here is my libertarianish response:

    If the Congress is going to vote on a law regarding health care, the law will first have to be written. This law will not be written by any given Representative or team of Representatives but will, instead, be written by lobbyists for the insurance companies. While the bill will be named something like “Care for your Health Is the Literal Downright Requisite Everyone Needs” (or CHILDREN) and it will be about as relevant to the provision of health care as PATRIOT was to keeping you and your children safe.

    The counter-argument that, no, the right lobbyists will be writing it this time doesn’t move me overly.

    This is not a quibble over whether there is an ideal health care system out there that might theoretically be applied. Sure there is. Sure.

    It’s a quibble over whether what we get will be a vector in that direction or a vector away from it.Report

  5. greginak says:

    What’s missing from the argument is the fairly obvious fact that insurance companies do not want to insure tens of millions of people. I don’t mean that in the “insurance companies are heartless bureaucracies who don’t care if people live or die” way, even though that is often true. If insurance companies could find a way to make money on the 45 or so million uninsured or compete with the various government programs they would. But they can’t. If you have health problems, which almost everybody will, you are a money loser. Individuals buying insurance on their own is pretty delusional since we have no bargaining power on our own. The only way many people get insurance is because they are part of a company that can bargain for rates and provide enough value to the insurer that they are willing to take sick people.

    To keep with the hot dog stand analogy, if I buy one hot dog per month or one per day, the vendor will still sell them to me. The vendor wants customer. In the insurance market they do not want any customer. They actively want to avoid some customers, those who are inconsiderate enough to have pre-existing conditions or health problems. The insurance market is simply qualitatively different from consumer goods, even without getting into the entire, I can live without a HDTV or hot dog, but can’t live without some sort of healthcare argument.

    As a bonus, if insurance companies know that they will not likely be insuring people for their entire lives, there is much less incentive to include preventative care. I have been told a couple times “sorry we don’t pay for preventative care” for simple vaccinations.Report

    • E.D. Kain in reply to greginak says:

      All very good points, Greg. I think the best option is still to have some form of either expanded existing program or a new public plan combined with deregulation of the private markets and an end to employer-provided insurance tax breaks.Report

    • Mark Thompson in reply to greginak says:

      Well, yes and no.

      Presumably what would happen if you removed or shifted the tax incentives to individuals is that you’d wind up with a wider array of insurance products to choose from, with many people opting for a high deductible type of plan (ie, real insurance) rather than using insurance as their means of regular care. The greater numbers of people choosing this option would significantly bring the price of this option down to the point where it would be more affordable to a number of those currently uninsured, though by no means all, and maybe not even most (again, though, I’m ok with expanding existing gov’t programs to resolve this problem).

      As for leverage to negotiate rates with the insurance companies, making the idea of individual insurance plans “delusional,” I don’t buy this argument. First, you can’t have a discussion about employer-based vs. individual health insurance without considering that an employer-based system insures that someone is going to lose coverage when they lose their job – this is a major problem to say the least. But on top of that is the fact that bargaining power vis a vis the insurance company isn’t likely to be a big problem, because it’s really not that big an advantage of the current system in the first place. The relevant bargaining power in the current system is really of the insurance company vis-a-vis health care providers. The reason why it’s often easy to negotiate bulk discounts on various goods is because of the improved economies of scale. But this logic doesn’t really work in the insurance industry – in fact, if you look at page 5 here ( ) you’ll see that the difference in rates between large and small employers is pretty tiny, suggesting that bargaining power against insurance companies is pretty minimal no matter what size the company. This makes sense – the marginal costs of administering a claim isn’t going to vary much between someone in a large group and someone in a small group, so there are not really any discounts to pass on.

      The issue of preexisting conditions is more problematic, at least in the short run. But it will remain a huge problem in the long run as long as we retain an employer-based system – even if we add a public option. If we switched to an individual-based system (with or without the public option), it would gradually cease to be a systemic problem in the long run. (In a totally socialized system, it would also cease to be an independent problem, but totally socialized medicine has other problems and is even less on the table right now than individual insurance).

      The reason for this is pretty intuitive. When insurance is tied to your job, then every time you switch jobs you have to get new insurance regardless of your health situation. If you develop a condition when you are unemployed or before you switch jobs, you’re pretty much SOL without some additional changes to HIPAA.

      But if you move to an individual based insurance system (necessarily with some kind of mandate), then the preexisting condition issue is primarily a problem only when people make the initial switch from their currently-existing plan. And there are ways of alleviating this problem – require that their existing provider continue to offer the same coverage at the same rate (indexed to inflation perhaps) to those individuals, or automatically enroll those individuals in whatever public programs we have set up. But as soon as someone has switched to an individual coverage, preexisting conditions will cease to be an issue because they can’t lose their coverage just by virtue of losing their job or changing jobs – they can stick with their coverage as long as they like. When they develop a condition, the coverage kicks in and the insurance company is going to have to cover it in perpetuity as a matter of contract.Report

      • I should have added to the above that we’re effectively the only country in the world where the private health care market is tied to employment – yet we have by far the most expensive health care system in the world. In that light, it’s really difficult to argue that individual insurance (which is the primary mode of insurance everywhere that has any kind of private insurance market but the US) would actually increase overall health care costs.Report

  6. mike farmer says:

    I was just saying that from a libertarian position, what the recommendation would be. I have no faith in government solutions, because the end game for government has been stated for years — national healthcare — and whatever solutions are applied right now will be to satisfy special interests, so unintended consequences are almost unavoidable. I do think this is an all-out or nothing propostion if you are talking about what would be most efficient. National healthcare where government provides coverage for everyone would be preferable to mongrel solutions which keep shifting and throwing price signals, and the regulations keep stifling innovative approaches. I mean, if that is what we want, then go for it, but quit playing the game of having your cake and eating it too. These compromised and convoluted solutions, and the game playing with public options are dishonest. Otherwise, get government out of healthcare and allow the market to deal with the demand and problems. We always seem to think we can compromise and come up with intelligent, societal engineering schemes, but they always fall short of the aim and wind up being just one more government failure — if government is the answer for healthcare because healthcare is different than cheesburgers and widgets, then let them have it — lock, stock and barrell.Report

  7. greginak says:

    As if it matters, but some of most successful of the national healthcare systems have a mix of private and public. We actually have options to choose from. There are all those systems out there we can study and try to take the best from. Of course learning from how health care systems work in many places just doesn’t seem to be part of our “debate” regarding health care.

    OBTW there are unintended consequences to everything. So it is irrational to avoid doing something because there might be unintended consequences.Report

  8. mike farmer says:

    Okay, then, let’s pick the best system and model ours after it. Whatever. That sounds like a good idea, if we aren’t going to allow the free market to do its thing, than why not? — pick the best foregin healthcare system and model ours after it.

    Explain to me how your statement that “there are unintended consequences to everything” is true.Report

  9. mike farmer says:

    Which foreign healthcare plan with a mixture of private and public that’s successful do you recommend?Report

  10. greginak says:

    France and Germany have well regarded systems that mix public and private. Of course I know the French system isn’t workable, because it is all French and everything.

    “Explain to me how your statement that “there are unintended consequences to everything” is true.”

    Wow that seems like such an obvious statement. Well people can neither foresee or prepare for all possible outcomes. Nor can we understand how others will interpret what we do or say. Simply our communication, information and understanding is limited and people are not terribly predictable. Any action we take is bounded by all those factors, leading inevitably to people not doing what we expect and situations to be different then predicted. Or another way of looking at is the Butterfly Effect, not the crappy movie but the concept from Chaos Theory.Report

    • E.D. Kain in reply to greginak says:

      I like the German system. That isn’t a bad option at all, and I think it could be possible for America to implement though it would be difficult. In any case, it’s much more sensible than what we have now!Report

  11. mike farmer says:

    Good, let’s go with a combination of the French and German system.

    Ich muerte eine kaffe tasse. Merci.Report

  12. mike farmer says:

    greginak — don’t assume I’m anti-french — that’s a prejudiced assumption, and totally unlike you. I have a french couple over to dinner all the time.Report

  13. mike farmer says:

    Some of my best friends are French.Report

  14. mike farmer says:

    I would have to go into a long drawn out philosophical journey to discuss intentions and consequences, so I will say — whatever — butterflies are beautiful.Report