The public option is not an entitlement

Because democrats cannot both cover everything they consider to be fair while also only charging what they consider to be fair. So the public option will soon enough become insolvent. At that point it would almost ceratinly be bailed out because its the PUBLIC OPTION just as all sorts of other programs have been bailed out. This basically makes the public option act as a subsidized plan and would of course add to the deficit.

And as you know, this then means that the public option is debt DECREASING, because the competition, pricing power (if we allow it to charge medicare rates), and other efficiencies (there are many long established in economics free market problems that can make a government role greatly increase efficiency, like externalities, asymmetric information, etc., etc.), cause the public option to lower insurance costs, and thus the amount of the subsidies.

I think a large part of Lieberman's problem may be he just doesn't understand the economics, not necessarily any ethics or character issues. Lieberman is very, putting it diplomatically, feelings based, and he appears to just have this feeling that very pure free market good, government bad, and being old (so an investment in learning has a lot less time to pay off) and very busy, he doesn't spend the time to learn the economics, that there are often severe inefficiencies with the pure free market that a government role can greatly alleviate, and for some things those free market problems are so severe the government must just provide the good, like national defense and other public goods (although even those are largely not government provided. The military doesn't make it's planes; companies like Boing do. It also doesn't make its pens, its beds, its desks, etc.)

"Democrats" won't be running the public plan. It'll be set up and run by administrators whose job is to, well, run the thing, offering a variety of insurance products within the Exchanges to anyone who wants to buy them.

And what you're proposing is that these people will figure out the actuarial value of all the different products they have to sell, figure out the appropriate premiums, and then say "nah, let's knock 10% off and run a deficit -- I'm sure if we screw it up too badly Congress will step in, and our personal reputations and career prospects will be totally untarnished!"

To my knowledge, this has never happened in the history of the Republic, so I think you've got a little more heavy lifting to do here.

(And if you're saying it'll be like Fannie Mae, and the public option will be in trouble if there's ever an industry-wide collapse, sure, I'll give you that, but that's like saying the post office is going to be in trouble if we run out of oil before developing alternative transportation technologies -- yes, I guess there'd need to be a bailout of the post office then, but at that point you've got far bigger fish to fry).

All this leaving aside that if they *did* decide to knock 10% off the prices, for the most part this would just mean that the government would have to pay out less in subsidies and wouldn't actually make that much of a difference to most of their enrollees. So even the bleeding-heartest of liberals would have no incentive to do what you suggest, even if s/he was sufficiently unintelligent to even briefly consider the course of action you're laying out.

"entitlement" has become a bit of a shorthand used incorrectly the last few years, even by you a bit here (per older uses). Some (less so recently) draw a hard line between what is an entitlement and what is a means-tested program; Medicare and Social Security being the former and Medicaid and SCHIP the latter. By that definition, the subsidies are means-tested, and the entitlement is insurance itself, inclusive of, but not limited to the public option.

Ezra,

I appreciate the response. However, isn't this just arguing that as structured the public plan is not an entitlement.

I think a serious fear is that if the public plan is successful at providing lower cost health care it will eventually expand and become synonymous with access to the exchange. There will be political pressure to open the exchange, so that more Americans can access the public plan.

At that point the public plan begins to take on entitlement like properties. It is now subject to the same budget busting properties as Medicare and Medicaid.

That is, one could believe that the plan will be successful and because of that belief be skeptical about supporting it.

There is more at my site:

http://modeledbehavior.com/2009/11/12/but-isnt-the-public-option-a-first-step/

alright maybe entitlement isn't the right word in its truest sense:

A government program that guarantees and provides benefits to a particular group:

But does any liberal believe that the government wouldn't FUND the public option? And if/WHEN they did would they do likewise for Humana?, Aetna? Blue Cross?

Ya I didn't think so.

I like Ezra's angle of treating Sen. L of Conn. with a presumption of innocence, and asking questions.

Good cop, bad cop.

you know its kind of like a conservative republican saying that the war isn't a war, its a "police action" or a "battle against insurgents". Call it whatever you like but we all know what it is.

"

Because democrats cannot both cover everything they consider to be fair while also only charging what they consider to be fair. So the public option will soon enough become insolvent. At that point it would almost ceratinly be bailed out because its the PUBLIC OPTION just as all sorts of other programs have been bailed out. This basically makes the public option act as a subsidized plan and would of course add to the deficit.

Posted by: spotatl"

---
That's a perfect presentation of the republican rhetoric.

The Public Option has to be subsidized, because we believe it has to be subsidized, because that makes sense to us, and that fits our rhetoric structure, and is a useful talking point. Therefore, it has to be subsidized, therefore here's our most plausible argument for how it will be subsidized.

But....it's more plausible to me to consider that health care costs money, and if you don't pay for it in method A, then logically you pay for it in method B.

So if for instance, you don't pay for certain health care prevention in method A, then you pay for more expensive treatments later in time in method B., etc.

If certain poor people die from lack of care before age 65, that has an economic cost which has to do with lost skills and lost workers, and that cost is carried by the economy. When the entire economy has higher costs in one certain way, then there is less money at various businesses to make raises, etc.

Cost is cost, whether you pay in method A, or method B.

The only real question is what will be done to bend the curve.

Come on Ezra, don't assume good faith where none exists. It's an "entitlement" because that word sounds scary and the people who voted for Ned Lamont support it.

What's to prevent is from becoming an entitlement?

So if for instance, you don't pay for certain health care prevention in method A, then you pay for more expensive treatments later in time in method B., etc.

Posted by: HalHorvath | November 12, 2009 3:40 PM | Report abuse

Okay Hal I'll bite. Say we do this and say we even subsidize the public plan. Do we then have the right to tell people what they can eat? YOu know fast food, junk and all? How much they exericse? Because if its being subsidized then why don't we have the right? Some people justifiably make the same argument when it comes to executive compensation at bailed out firms. If we're bailing out American's waistline don't we have the right to say what people do??

Mike- as long as the public option would be allowed to fail and go away once it becomes insolvent then I have absolutely no problem with trying it. If you really do think that "corporate greed" is the only reason that health care premiums are so high then here is a big pile of money (one time only) and go try your grand experiment. But the only advantage of calling it a "public plan" instead of a "national co-op" is that a public plan will be bailed out once it becomes insolvent. If democratic politicians want to come out on the record and say that they will refuse to vote for more funding for the public plan in the future then I'll have no problem supporting it.

I don't think corporate greed is the only reason health care costs are so high. The delivery system and payment reforms that are a part of the House and Senate bills are in many ways more important than the public plan, save for the fact that it can be an avenue for spreading these quality-increasing, cost-lowering practices. But it remains a fact that insurers right now are not in a competitive marketplace, and the public plan can leverage greater cost savings.

The advantage of not structuring it as a national co-op is that first, nobody knows what a national co-op would really look like, and second, if you want cutting-edge delivery reforms (and we do very much need them) a co-op approach might not be the best way to encourage that.

But these fears that it'll somehow go insolvent and need to be bailed out are just silly -- you can replace the words "public plan" with "post office" in the entire thread above to see exactly how and why.

First of all, there's no reason to think it will go insolvent; second of all, there's if it did, enrollees could simply switch insurers; and third, if the fear is that a decade or so down the line some other Congress is going to do something you don't like, the on the record promises of several currently-serving Democrats are worth basically nothing.

Mike- look at how much congress influenced Fannie Mae to expand their lending practices and to keep rates low. When congress has their hands in this then of course I think that politicans are going too have their hand in this and because something is as sensitive as healthcare the politicians will do whatever they can to keep the premiums low, even if it jeapordizes the solvency of public option.

And I think that you are just delusional if you think that the public option would be allowed to fail.

@Mike_Russo: "But it remains a fact that insurers right now are not in a competitive marketplace"

This is 100% false.

You're assuming the Government could competently run an insurance company. They can't. It would lose lots of money. That would add to the deficit.

Private insurers have issues but at least they don't have unionized workers. Imagine what that would do the cost of premiums and the quality of service.

Why doesn't the bill simplify regulatory compliance for insurance companies? That would make health insurance less expensive to provide. Isn't that the goal?

Why does the bill mandate one size fits all policies? That makes policies more expensive for everyone. That doesn't make sense.

Have you ever heard of implicit marginal tax rates? You might want to educate yourself on that term. It does matter. Your hippie logic can only take you so far.

To Karl Smith:

Yes, and then that might lead to single payer, and then...oh wait, single payer countries have been shown to have about half the health care costs of the U.S. with as good as, or better, quality.

Why do you think it's so easy to run an insurance company? You've clearly never worked in the insurance industry.

spotatl -- your argument proves too much (though I don't buy it). OK, suppose that in years that Dems control Congress, they push the public option to lower premiums. Then in years the Republicans control Congress, they push it towards increasing premiums (or, you know, killing it). If it's that responsive to political actors, why should we assume it only goes one way.

(and again, the Fannie Mae comparison doesn't get you very far, because all that says is that if the entire industry collapses, the public plan will be another casualty. You probably noticed that Fannie Mae was not the only entity bailed out in the mortgage collapse, and it's not like the presence or absence of that one semi-public entity would have changed the overall dynamic of what happened)

ab13: I'm referring to the AMA study that found that 96% of health care markets are "highly concentrated" under DoJ antitrust guidelines:

http://www.ama-assn.org/ama1/pub/upload/mm/368/compstudy_52006.pdf

I've also spoken with individuals and small business owners who've attempted to shop around for health insurance, and haven't met a single one who felt like an empowered consumer who insurers were competing to serve.

What exactly is your claim that all of this is "100% false" based on?

"What exactly is your claim that all of this is "100% false" based on?"

Almost 10 years working in a highly competitive industry with a large number of companies we are competing with directly to gain market share. There is a lot of consolidation in the large group market, but the individual and small group markets are extremely competitive. The SG market probably has 200 players. A large part of my job is based on dealing with competitive pressure.

If the market is not competitive why are the insurers only making 3-6% profits?

This part from that AMA study you linked was priceless:
"The DOJ’s concern is whether a health insurer could use its market power to depress reimbursement rates in a manner that would lead to a reduction in the quantity and quality of physician services provided to patients."

Insurers are paying far higher reimbursement than Medicare, and astronomically higher than the reimbursement in other countries, and the insurers have very limited power to control the reimbursement rates. And even with the high reimbursement utilization is increasing at unsustainable levels thanks to the prevalence of FFS medicine. Yet the AMA wants you to believe these bullying health care monopolies are screwing them. That's laugh out loud funny.

The public option will be subject to the same pressures that Fannie and Freddie faced. Will it behave differently? And if it does not, won't taxpyers have to bail it out like they did the terrible two?

I'm curious to know if there are folks out there who support the public option, but who don't support single payer. I think the former is a ruse to move toward the latter.

The first subsidy for the public option will be access to cheap setup capital from taxpayers. The next is the ability to operate nationally, which no private firm can do by law. The third bit (tbd in the final bill) is what its payment scheme will be. And that's before adverse selection bites, causing usage to crater and premium income to fall ever more short of costs.

Hawaii has lower costs, is closer to universal coverage than anywhere else, and has no public option. Why don't we go with a proven success instead of jumping off a cliff?

To fallsmeadjc and others:

The government has ran an insurance company for over 40 years, and with far lower costs and far higher satisfaction than the private insurance companies.

It's called Medicare.

ab13: you're conflating the negotiating power of insurers as compared to providers with the competitiveness of the insurance market as experienced by consumers. These are two very different animals.

It can be the case that insurers and providers are locked in a consolidation arms-race that, in some places, providers are winning, while simultaneously it being true that consumers have very few choices for coverage. Yes, there's less consolidation in the individual and small group markets -- but lower negotiating power and higher administrative costs leave small businesses paying substantially more for the same product as large businesses, and on the individual market, wide-open rating rules mean many consumers have no choices at all.

As for why insurers have profit margins of 3-6% -- well, that number of course depends a bit on where and when you're looking, but maybe, at the end of the day, taking money from a large group of people and then redistributing it to the ones who need medical care is just not in itself an industry that lends itself well to massive profit margins?

I don't mean to understate the value of care management and payment policies that reward effective treatment, and can certainly point to good examples of this sort of thing that private HMOs have pioneered. But that that's not what the market is set up to reward right now, and to the extent that there's competition in the small and individual markets, in large part the "competition" is about risk selection, not cost and quality.

If you're concerned about competition then why not endorse a reduction in compliance costs to reduce the cost of providing insurance and thus increase the number of players that can afford to compete in the market. It is not coincidental that States with excessively expensive regulations have fewer insurance options. Compliance is expensive and at a certain level of regulation only really large insurers can afford to be in the market.

If I could run a business that could afford to lose billions of dollars/year indefinitely I would have really happy customers but that wouldn't make me a competent manager. How can anyone think Medicare is run well?

RichardSerlin,

seriously? Lower costs? If insurers were told by the government that all providers could only accept medicare rates trust me insurers would be lower cost than Medicare. If they didn't have any competition like Medicare has none then their costs would be lower. ALso there's the little matter that insurers are required to have capital on reserve while Medicare can just get more money whenever it wants (AND IT DOES).

Medicare also hides its costs as they don't have to pay for things like buildings and infrastructure. That's a nice hidden cost that no one ever talks about.

Please don't believe the crap about medicare's costs at 3%.

oh and you want want to refer to this CBO piece from 2007. Look to page 5:

http://www.cbo.gov/ftpdocs/87xx/doc8758/11-13-LT-Health.pdf

From 1975 to 2005, the share of national health expenditures
that was financed privately fell slightly, from 59 percent
to 55 percent, while the share that was financed publicly
rose correspondingly, from 41 percent to 45 percent
(see Figure 1).

Oops. So much for that "medicare does it better" reasoning.

Here's a better one. Back when it started private funding was 75% and public 25%. Now its more like 53 to 46%. And with the huge increase in Medicaid receipients to come I'm betting public funding jumps ahead!

http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf

vis -- Well, we know that Medicare and Medicaid cover progressively more, more types of care, over that time, from 1975 to 2005. Also that more people are covered by Medicaid, due to extensions in who is eligible.

About stuff like healthy lifestyle, I favor education generally, but for some specific things known to cause health problems, like second hand smoke, etc., I favor taxing that activity in exact proportion to the total costs it causes, so that the costs are paid by those that choose to smoke, emit pollutants (certain industries/processes/engines), etc. That's just a pay-your-own-way thing, really. If you cause a cost, you pay the cost, etc.

Visionbrkr,

Increases in Medicare's percentage of total health care expenditures are due to increases in the proportion of citizens over 65 and costs of their elaborate treatments.

Studies have controlled for the things you've mentioned, and more, and still found that Medicare administrative costs are far lower.

This is due in part to economies of scale and simplicity and no advertising costs. You can't scale up private insurance too high, as you can with government, because of severe monopoly power problems.

As far as Medicare's pricing power, you can't say, well if private insurers had that power, because they never will have that power. If you let them get as dominant as government can become in Medicare, then you will have severe monopoly power problems. This illustrates one of the classic pure free market problems, where economies of scale in a particular market are extremely strong; it's often called the natural monopoly problem.

The other really interesting question is the health costs created by certain foods, or additives, like corn syrup, etc.

I think the only fair way to tax such additives is in exact proportion to the scientifically calculated health costs they create. That means more research first, I bet.