Private insurers cannot compete with government

With President Obama’s August deadline for reforming health care in America looming, the debate is heating up. The stakes couldn’t be higher. President Obama promises Americans who have coverage they will be able to keep their coverage, but this will be just one more promise he won’t be able to keep.

Even if the president believes what he says, the fact is, he is mistaken. Scott Harrington explains why.

In reality, equal competition between a public plan and private plans would be impossible. The public plan would inexorably crowd out private plans, leading to a single-payer system.

Advocates claim that a public plan would achieve significant savings in administrative costs. Among other omissions, they ignore that a significant proportion of private insurers’ expenses are incurred for creating and maintaining provider networks, and for monitoring payments to reduce waste and fraud. Private health plans have a strong incentive to spend a dollar as long as the expected savings in payments is at least a dollar. The resulting expenditures increase reported administrative costs, but they save money overall. A public plan will not have comparable incentives.

The argument that a public plan would not need profits and would prevent excessive private-plan profits is populist rhetoric. Profits are needed to earn normal returns on the capital that private insurers invest to back the sale of coverage and to make promises to pay claims secure. They have not been excessive compared with other industries. A public insurer wouldn’t have to hold amounts of capital comparable to private plans. It would be backed by taxpayers. Nor would it likely be subject to the same taxes that private insurers pay, including those on investment returns from holding capital. “Competition” on this level just isn’t possible. Read full article at The Wall Street Journal.

Fortunately, the president is running into opposition from his own party, as well as independent Senator Joe Lieberman who caucuses with the democrats. Lieberman stated he is opposed to any public option. Senators Mary Landrieu and Ben Nelson are also leery of the public option. Without them republicans have a good chance of filibustering any plan that includes a public option. That’s a good thing.