Public Option Will Lower Private HealthInsurance Premiums...to Zero - Op Ed - Washington Policy Center

Public Option Will Lower Private HealthInsurance Premiums...to Zero - Op Ed - Washington Policy Center

Responding to the concern that setting up a government-run public option insurance plan would inject politics into American health care, public option backers are saying, “Right. And that’s a good thing.”

A recent Washington Post article reports, “Economists in this [pro-public option] camp say a public option would not under price insurers so as to drive them out of business; political pressures from medical providers would restrain Congress just as it is restrained today from limiting Medicare rates too much.” The article adds, “And the [public] option's pricing powers would be limited by political pressures against driving too hard a bargain on providers.”

This is a novel argument; bringing “political pressures” into the private marketplace makes the market more efficient. I'd sure like to know the names of the economists in the public option camp who say lobbying Congress is a form of healthy market competition. Ample real-world experience shows the opposite. Massive government intervention distorts markets, reduces the benefits of competition, and leads to waste, inefficiency and cronyism, not lower prices and better service.

We already have an example from the world of health care. Every year Congress experiences a political firestorm as it tries to save Medicare from bankruptcy by cutting reimbursement rates to doctors. The American Medical Association, not surprisingly, vigorously objects and lobbies hard to preserve or increase payments to doctors. A deal is reached and the controversy is re-scheduled for the following year. Whether this management technique is saving Medicare or sinking it faster is an open question, but I doubt most Americans want their own health plan run this way.

The current lack of competition in health care comes from politicians, not insurers. Health insurance is perhaps the most highly regulated economic activity in the country, with price controls, limits on products, extensive reporting rules, a ban on interstate sales, high barriers to entry, unequal tax treatment, and a host of minutely detailed federal and state regulations. Congress and state legislatures should first repeal the anti-competitive laws that they enacted, and force insurance companies to compete more against each other, before Congress sets up an insurance company of its own.