The Public Option’s Problems

by · August 21, 2009

Mark of New Jersey

Mark is a Founding Editor of The League of Ordinary Gentlemen, the predecessor of Ordinary Times.

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17 Responses

  1. greginak says:
    August 21, 2009 at 9:19 am

    I’ll readily admit the continuing discussion and a lot of what I view as colossal stupidity is driving me crazier then my baseline crazy.

    So FWIW, this was ungood. The European Union is not a good analogy because it is made of different countries and we are one country. States do not remotely look like separate countries ( a guy with a blog should know it ins’t 1794) The states are limited in what they can on health based on size (see Alaska, North Dakota,etc) and assorted free rider problems. The public option ( as much as there is one clear plan, which there isn’t) a) could always be modified if all the private insurers decided they wanted to stop making money and b) public plans haven’t drive out all sorts of private competition in this country or other countries. The public plan is being set up to not pull people out of the current employer based system, which has noted on this site to be a problem. As much as people love federalism it isn’t not 1790 and we operate far more as a country then a bunch of individual states. We should health care vary according to state if the states were to set up individual plans. And of course the public plan will have plenty of regulations to bind it just like the private plans.Report

    • Jaybird in reply to greginak says:
      August 21, 2009 at 9:25 am

      Shockingly, the assorted free rider problems are the problems I have with universal health care.Report

    • Mark Thompson in reply to greginak says:
      August 21, 2009 at 9:29 am

      Maybe I’m misinterpreting Dave, but my impression is that this isn’t so much an argument for federalism as it is a practical concern about the public option – how are state regulations of private insurers going to apply to any federal public option? Is the public option going to have to comply with those regulations, which vary a lot from state-to-state? If not, then how are private insurers in that state going to compete with the public option, which doesn’t have to overcome the same regulatory hurdles? If so, then how is the public option going to be cost-effective since it will have to simultaneously comply with 50 different sets of regulations in addition to federal regulations?

      And while the EU analogy can be taken way too far, I think the point here is that as things currently stand, most regulation of insurance is already a state-level thing, rather than a federal-level thing, with the obvious and important exceptions of Medicare/Medicaid and certain tax incentives.

      Now, if you completely federalize regulation of the health insurance industry, this problem goes away, obviously, but AFAIK, complete federalization isn’t on the table.Report

      • Mark Thompson in reply to Mark Thompson says:
        August 21, 2009 at 9:32 am

        I should add this question:
        Or is the federal government going to administer what is effectively 50 different public options, in which case it will lose a lot of its cost-effectiveness through high administrative costs that don’t exist in Medicare/Medicaid.Report

        • greginak in reply to Mark Thompson says:
          August 21, 2009 at 9:44 am

          Well the individually run state Medicaid programs create all sorts of problems. My GF does some case management for private company Alaska hires to do oversee it’s Medicaid. There are frequent problems with different states having slightly different requirements or deadlines leading to people briefly losing coverage or requiring expensive case management to make the system work. Some states shut down a program for various reasons so a person is then unable to move back to their family while they are seriously ill.Report

  2. ChrisWWW says:
    August 21, 2009 at 10:04 am

    The question shouldn’t be whether or not the public option can fairly compete with for-profit insurance. It should be whether or not it can deliver better health care or the same health care at a reduced price.

    Also, isn’t it possible that once the public plan is in place, health insurers will successfully lobby to get these state regulations wiped away?Report

    • Mark Thompson in reply to ChrisWWW says:
      August 21, 2009 at 10:37 am

      “The question shouldn’t be whether or not the public option can fairly compete with for-profit insurance. It should be whether or not it can deliver better health care or the same health care at a reduced price.”

      If this is the question, then the discussion we need to be having is whether we are prepared to go to single-payer health insurance. I say this because, if the answer to that question is “yes,” then there is no longer a use for private insurance at all and we really should be going directly to single payer; if the answer is “no,” then the public option will do very little good. As I’ve said before, I am personally willing to go the single-payer route (though I think it ignores routes that would be far better), but when this point is raised (albeit often in a counterproductive and vicious manner), the liberal response is too often to deny that single payer is the necessary result of an effective public option. My expectation is that, since single-payer seems to be going nowhere, we will get a public option that is set up so that it will not lead to single-payer. But if the public option will not lead to single-payer, then I think that by definition it will be ineffective.

      Also, isn’t it possible that once the public plan is in place, health insurers will successfully lobby to get these state regulations wiped away?

      In some states, I’m sure the answer is yes, but we’re talking about 50 different states here. But beyond that, if those regulations need to be wiped away, then – assuming those regulations qualitatively make insurers deliver better health care – what the public option offers will by definition not be “better health care” since it will not need to comply with those regulations that set certain minimum standards. If this is the case, moreover, the insurers in a given state will not have an incentive to lobby for removal of the regulations, which (as our current guest post points out beautifully, even though said poster is, I believe, a supporter of the public option) grant those insurers de facto monopolies in those states.

      I’m willing to concede that a public option might (though I am by no means certain) have a meaningful effect on costs and quality if it is accompanied by federalization of regulations. But without that….Report

      • ChrisWWW in reply to Mark Thompson says:
        August 21, 2009 at 10:51 am

        Mark,
        I’m not afraid to say that a good Public Option would likely kill the insurance industry. This is supposed to an experiment to see if it’s actually better.

        As for state level deregulation, I was thinking it would be a national law regulating interstate commerce or some other BS that would force the states to abandon their own regulations of insurance.Report

        • Mark Thompson in reply to ChrisWWW says:
          August 21, 2009 at 11:19 am

          Yeah, but you’re, umm, honest. 🙂

          On the second point, I’m sorry I misunderstood you. That said, why wait for that to happen instead of just putting it into the bill now? My guess is that the insurance companies probably don’t actually want federalization and are fighting against it since the state-level regulations are where they hang their hat.

          My prediction is that the public option, if actually instituted without complying with state regulations and without federalization of regulations, would have the following effects:
          1. It would offer lower quality coverage (which may not be a bad thing, by the way) than a given state’s standards.
          2. It would do so at a lower cost than private insurance becuase of the lack of a profit and the lower quality, but not nearly as much lower as hoped for because it will deny fewer claims (which is obviously a good thing).
          3. It would cut into the resident insurance monopoly in a given state but not all that much because of the continuation of tax deduction-supported employer insurance plans. At least some of the few smaller competitors that still exist in a given state, however, may be put out of business due to their smaller room for error. Their remaining employer customers will be funneled into the state’s monopoly.
          4. Although the public option will be less expensive than existing insurers, it will still cost much more than the premiums it is able to collect and will thus be a heavy burden on the federal budget/deficit.
          5. A not-insignificant portion of the currently uninsured will still be unable to afford the public option and will instead opt to pay whatever penalties are put in place via mandate.

          If, however, there is federalization of regulation, I could foresee a situation in which the public option does result in a single-payer system. Hrm…I have to think about this some more, but I could maybe also foresee it leading to a more competitive market on the whole.Report

  3. Dave Schuler says:
    August 21, 2009 at 10:10 am

    greginak, you may not be aware of this but short of constitutional amendment the federal government has no way of removing the power to regulate insurance companies operating within their borders from the states. The federal government manipulates the states by inducement, not by fiat.

    That’s as true now as it was in 1794. Incorporation does not mean that the federal government can do anything it jolly well pleases.Report

  4. Michael Drew says:
    August 22, 2009 at 3:40 pm

    From the post linked:

    there’s a serious constitutional issue with the public plan. As things stand private insurance companies are regulated by the insurance boards of each state in which they operate. Would the same be true of the public option? If not, it doesn’t compete under the same rules as private insurance companies. If so, how would that work, exactly? State officials would issue orders to federal officials?

    “Doesn’t compete under the same rules as private insurance companies” is not a serious constitutional issue. It’s just a breach of a talking point used to try to reassure the industry and other skeptics. As to whether a federal public option would be required by law to conform to state regulations, I’m not a constitutional lawyer so I can’t say myself, but I don’t see that there would be a serious problem either way. It’s an interesting question with important consequences, but not an obstacle in any way I can see. Aren’t there plenty of federal programs that operate in areas regulated by state law?

    Moreover if a federal program is bound by state law or if it isn’t, either way I don’t think there’s any reason compliance would be big problem. Just guessing, but a public option likely would have been administered regionally or even state-by-state anyway.Report

    • Michael Drew in reply to Michael Drew says:
      August 22, 2009 at 11:07 pm

      Note that saying that it would be able to comply with state regs isn’t to say that if it isn’t legally compelled to do so, it necessarily should. Mark gives some good reasons that it perhaps shouldn’t. (Though it would be likely to come under considerable political pressure to do so.) It’s only to say that compliance wouldn’t be that much of a problem if it for one reason or another had to comply.Report

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