Don't We Already Know the Answer to this Question

Greg Mankiw writes about a Paul Krugman article on "the public option," a plan in Congress to provide a federal health insurance plan to compete with private plans and "keep them honest"**

It seems to me that [Krugman] leaves out the answer to the key question: Would the public plan have access to taxpayer funds unavailable to private plans?

If the answer is yes, then the public plan would not offer honest competition to private plans. The taxpayer subsidies would tilt the playing field in favor of the public plan. In this case, the whole idea of a public option seems to be a disingenuous route toward a single-payer system, which many on the left favor but recognize is a political nonstarter.

If the answer is no, then the public plan would need to stand on its own financially and, in essence, would be a private nonprofit plan. But then what's the point? If advocates of a public plan want to start a nonprofit company offering health insurance on better terms than existing insurance companies, nothing is stopping them from doing so right now. There is free entry into the market for health insurance. If a public plan without taxpayer support would succeed, so would a nonprofit insurance company. The fundamental viability of the enterprise does not depend on whether the employees are called "nonprofit administrators" or "civil servants."  (via Q&O)

But I think we already know the answer to this question.   If Obama and the Democratic Congress is willing to pour a hundred billion dollars or more down the Chrysler and GM rat holes, they certainly are going to pony up far more to support a program so near and dear to their heart for so many years.

There is simply not some magic, easy to access pool of savings in health care available to government managers that will reduce costs 30% or pay for increases in benefits.  If there were, Medicare should have already captured them.

** This is always hilarious to see, as if health insurers make some kind of inordinate profits.  As shown before, the typical after-tax profit at health care companies and insurers is something like 3-4% of revenues.

  • morganovich

    i think a very clear sense of where the administration would like this to go can be gleaned from proposals currently in congress to tax private (employer provided) benefits to fund insurance for those who don't have it. this is even more distortionary than just a subsidy. imagine trying to compete with t a plan that your effective price is taxed to pay for. it's like taxing every ford to subsidize every chevy.

    making insurance more expensive for those who do have it is so anathema to the stated aim of universal coverage that it can only be a trojan horse for single payer.

  • Mesa Econoguy

    What Obamalini, Krugman, et al. are doing is creating a set of conditions which will drive private insurance from the marketplace, effectively making government single-payer the only option.

  • Kalebarkab

    I want to find good pop music. Help me please.

  • SuperMike

    Taxing every Ford to subsidize every Chevy? Inconceivable! Oh wait...

  • spiro

    I find it enlightening to glimpse into the minds of these politicians, celebrities, professors, and journalists -- none of whom have experience in business management and business budgeting.

    I'd like to read Krugman's opinion on the eventual federal bailout of the NYTimes. He may find it favorable at first, but what about 2012, when the Republicans take back the executive office?
    And don't have ANY doubt that the "paper of record" will need a bailout, soon, and that the feds will find it "too big too fail."

  • Dr. T

    "There is simply not some magic, easy to access pool of savings in health care available to government managers that will reduce costs 30% or pay for increases in benefits. If there were, Medicare should have already captured them."

    The Veterans Health Administration should have done so as well, but it did not even though it had a big advantage over Medicare: VA physicians are employees of the government and not private practitioners. Big government does not know how to efficiently manage anything, so VA costs are no lower than private care costs.

  • Raven

    A few points:

    1) I am a Canadian and have had a public insurance system for years. I have always been reasonably satisfied with the system based on the experience I and my relatives have had with the system.

    2) Americans already subsidize private health insurance through the tax system (i.e. health benefits are not taxable benefits and this does count as HUGE tax subsidy).

    3) Private healthcare in the US is incredibly expensive. I work as an independent contractor which means I pay all of my own benefits. My total income tax bill is much less than the income tax + health care premiums paid by US based collegues in a similar situation. For most people with a family health care premiums are indistinguishable from a tax since they have to pay them.

    4) The wait lists in Canada are a real issue and they are the inevitable consequence of a free system because that is the only way to control demand. However, the US media is grossly exagarrating the significance of these waiting lists from the perspective of the majority of users of the system.

    5) The cost savings are a red herring. It is unlikely that a public system would be any cheaper - especially if the unions get their claws into it like they have in Canada.

    6)The biggest flaw in the Canadian system is the ban on private insurance. As long as the US ensures that people are still entitled to purchase private insurance and receive the tax subsidy that they already get then a public plan will likley be a good thing for the US.

  • jeff

    Raven,

    I believe there's one big blind spot in your analysis:

    1) I am a Canadian and have had a public insurance system for years. I have always been reasonably satisfied with the system based on the experience I and my relatives have had with the system.

    -and-

    4) The wait lists in Canada are a real issue and they are the inevitable consequence of a free system because that is the only way to control demand. However, the US media is grossly exaggerating the significance of these waiting lists from the perspective of the majority of users of the system.

    I believe the majority of Canadians are not significantly bothered by the wait lists for medical services because the majority are healthy and not personally waiting for medical services, or they just drive across the border and pay for services in the US.

    Additionally, if the Kennedy plan is passed, there will not be a private insurance market in the US in 10 years. The public plan will have crowded it out of the market.

    In 10 years, we'll all be flying to India for timely, quality, affordable major surgical care.

    Jeff

  • Raven

    jeff,

    My experience is based on the experience of relatives facing major illnesses like cancer. It is not simply a question of never needing the system. The wait lists are only a problem for non-life threating quality of life issues (i.e. knee surgeries). People with life threating problems generally get care within a reasonable timeframe (individual horror stories exist in Canada and the US and you can't judge a system by those alone).

    You also need to remember that every industrialized country other than Canada has a dual public-private system and there is no reason to believe that a dual system would not survive in the US but people will likely have purchase insurance to supplement the public plan instead of purchasing private insurance that covers everything.

    Last thing. The ban on private medicine is a odd feature of Canadian politics that only remains because most Canadians live close enough to the US so they can pay lip service to the notion of a 'socialist single tier' system while being secure in the knowledge that they can buy whatever care they need in the US.

    In other words, Canada outsources it private medical system just like it outsources the production of pineapples and bananas. It may be odd way to do things but it cannot be really used as evidence of a failing system since the services provided by US clinics could easily be provided by private clinics in Canada if it became necessary (this is already happening).

  • Love your post on this subject, unless we collectively get at the waste - overuse, misuse and underuse of health care the rate of health care increases will consume most of our resources. (www.ilovebenefits.wordpress.com) They will expand coverage (that's a political winner), but they won't attack the spending because that gores someone's ox (political loser). They will leave us all to pay the cost. Anyone who believes that only those over $250,000 of income will be the only ones paying are sadly mistaken. Those in that income bracket don't have enough combined earnings to pay the kind of bill they are talking about over even the short term.

  • Mike

    "If the answer is no, then the public plan would need to stand on its own financially and, in essence, would be a private nonprofit plan. But then what’s the point? If advocates of a public plan want to start a nonprofit company offering health insurance on better terms than existing insurance companies, nothing is stopping them from doing so right now."

    Kind of like the USPS. UPS and FedEx are private companies, operating without a subsidy. In fact, they have to pay taxes. So while UPS and FedEx are better shippers, the USPS is far cheaper. It's rare I ship items, but when I do, if they are small and light enough, I'll choose the private company, which ever is cheaper.

    However, if it's a large or heavy item, I'll ship it by whichever method is cheapest, whether it's UPS, FedEx, or the USPS. I have limited funds, so I have to do what I can to cut costs.