Reader Question – Why do we need the public option?

A reader writer:

If they pass the bill without a public option AND also have a requirement for all people to purchase health insurance, with subsidies for those who can’t afford it, wouldn’t the result simply be the government paying those subsidies DIRECTLY to the insurance companies with NO WAY of containing costs?

That would be a HUGE boon for the insurance companies!

Why, yes it would!

Look, this is the main problem with the fragmented way we’re implementing reform.  We know we need a large risk pool.  We know we need everyone’s money, especially the healthy people’s.  We know we can’t allow people to game the system.  And since we apparently aren’t willing to go the single payer route, that means we need a mandate.  We have to force everyone to buy insurance.

[W]e conclude that, absent a single payer system, it is not possible to achieve universal coverage without an individual mandate. The evidence is strong that voluntary measures alone would leave large numbers of people uninsured. Voluntary measures would tend to enroll disproportionate numbers of individuals with higher cost health problems, creating high premiums and instability in the insurance pools in which they are enrolled, unless further significant government subsidization is provided. The government would also have difficulty redirecting current spending on the uninsured to offset some of the cost associated with a new program without universal coverage.

This is what then-Senator Clinton said again and again in the primaries.  The biggest danger with the mandate, however,  is that we will wind up forcing people to buy insurance they can’t afford. And then-Senator Obama called her out on it.  He even went after her for it in the following ad:

Although the irony in that it’s his problem now is rich, now, as then, there is no easy solution.  One way to make sure this doesn’t happen is to make sure people get subsidies to buy insurance.  That raises the cost of the bill, though.  And, it results in tax money going directly to private insurance companies who may still be charging too much, as there is little in the bill to contain costs.  This is what the reader points out.

And that’s where the public option comes in.  I’m not going to reinvent the wheel, when Paul Krugman explains it so well:

The first [reason is]… the extent to which even a public plan with limited bargaining power will help hold down overall costs. Private insurers do pay providers more than Medicare does — but that’s only part of the reason Medicare has lower costs. There’s also the huge overhead of the private insurers, much of which involves marketing and attempts to cherry-pick clients — and even with community rating, some of that will still go on. A public plan would probably be able to attract clients with much less of that.

Second, a public plan would probably provide the only real competition in many markets.

Third — and this is where I am getting a very bad feeling about the idea of throwing in the towel on the public option — is the politics. Remember, to make reform work we have to have an individual mandate. And everything I see says that there will be a major backlash against the idea of forcing people to buy insurance from the existing companies. That backlash was part of what got Obama the nomination! Having the public option offers a defense against that backlash.

We need the public option because it (1) may offer a cheaper alternative, (2) promote competition, (3) and provide political cover.  Even the CBO has recognized that its inclusion would likely lower the cost of the bill, not raise it.  Regardless of what opponents say, these are the reasons to want the public option, not as a backdoor to single payer.  If that’s why you want it, sorry to disappoint you.

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