"Imagine health-care reform without a public option"

[ProSense]

Medicare and the Public Option

James Kwak | Aug 25, 2009
Simon and I have our latest weekly column up at the Washington Post. The topic is contradictions: opponents of the public option who bill themselves as defenders of Medicare, opponents of cost savings who support private health insurers, and so on. It’s also about a world without a public option:

Imagine health-care reform without a public option: Insurers have to charge the same price regardless of customers’ medical history; everyone has to buy insurance; and poor people get subsidies to help them afford it. From the insurers’ perspective, they get more than 40 million new customers, they subsidize the old and sick by overcharging the young and healthy (who have to overpay because of the mandate), and the government even pays people to buy their product. There are no new competitors (additional choices for customers), and there is no pressure to reduce costs. What could be better?

As we’ve said before, I think this is still far better than the current situation. Ezra Klein recently made the point much more forcefully. But still, reform without the public option could be a recipe for private insurers to charge whatever they feel like charging. Alex Tabarrok, not the first person you would expect to write a post called “In Defense of the Public Option,” writes:

Since escape via non-purchase will no longer be a potential response to higher prices, mandatory purchase will reduce the elasticity of demand giving firms an incentive to increase prices. Moreover, in oligopolistic markets, a more homogeneous product can increase the ability of firms to collude.

I believe that health insurance reform will increase the market power of insurance firms and drive up prices. In this scenario, the public option at least has a raison d’etre, although whether it actually fulfills it’s purpose is an open question.

[John Q. Citizen]

1. As long as we are imaging, can we imagine a single payer system please?

It's public and it's not an option.

It works everywhere it's ever been tried.

It contains costs and everyone has access to quality care.

Imagine there no insurance company
It's easy if you try
no one to say we aren't covered
no one who would just let us die

Imagine all the people
with no premiums

You might say I'm a dreamer
But i'm not the only one
I hope some day you will join us
and we can join the rest of the industrialized civilized nations and live as one.

[ProSense]

2. Imagine away. n/t

[harun]

4. +1

[andym]

3. This could be fixed by a capped price on an extensive basic insurance policy

The premium/copay cap could be set a reasonable percentage (5-10%?)above the average costs per individual (0-64 years old)(using Medicare rates for services as a baseline) averaged over all medical services in the USA. Each insurance company that participates in the exchange would have to offer it (even better would be all insurance companies would have to offer it). That should be quite affordable, especially if the poor are then subsidized. The insurers profit on this policy would be capped, but they get their new customers. The biggest problem is that it would be a much better deal than their standard policies. Th basic policy should include pretty extensive benefits in order to work.