The Pitfalls of the Public Option

[snip]An important question about any public provider of health insurance is whether it would have access to taxpayer funds. If not, the public plan would have to stand on its own financially, as private plans do, covering all expenses with premiums from those who signed up for it.

But if such a plan were desirable and feasible, nothing would stop someone from setting it up right now. In essence, a public plan without taxpayer support would be yet another nonprofit company offering health insurance. The fundamental viability of the enterprise does not depend on whether the employees are called “nonprofit administrators” or “civil servants.”

In practice, however, if a public option is available, it will probably enjoy taxpayer subsidies. Indeed, even if the initial legislation rejected them, such subsidies would be hard to avoid in the long run. Fannie Mae and Freddie Mac, the mortgage giants created by federal law, were once private companies. Yet many investors believed — correctly, as it turned out — that the federal government would stand behind Fannie’s and Freddie’s debts, and this perception gave these companies access to cheap credit. Similarly, a public health insurance plan would enjoy the presumption of a government backstop.

Such explicit or implicit subsidies would prevent a public plan from providing honest competition for private suppliers of health insurance. Instead, the public plan would likely undercut private firms and get an undue share of the market.[Snip]

My letter to Greg Mankiw:

Professor Mankiw,
Your editorial in today’s NYT is brilliant and seems to be an expanded thought from a similar blog entry several days ago. I am very grateful to you in bringing up these issues with skeptism; the healthcare debate desperately needs a voice of reason.
In particular, I’m interested in the idea – and idea that you’ve now mentioned twice – concerning why no one has started a non-profit health insurance endeavor. It is a great question and I’d like to see more economists, pundits, or policy makers of the minarchist mindset [if there’s such thing as a policy maker in that camp] take notice and ask the same question.
I’ve been giving the idea some thought and wonder what such a non-profit insurance could look like and what it would cover: whether the coverage would be tiered or would have the same coverage for all; premiums differentiated by risk factors or based on ability to pay; whether it should be underwritten at all or a gaurantee issue. So many factors and so much potential ‘unfairness’ for so-called Progressives to argue about. Anyhow, those decsions are not simple ones to make especially considering the population that this insurance would likely serve as well as the realities of operating a business of this type.
However, the population that would most likely be served is the main reason why we’re at this point having these discussions and why such an excellent question was raised (your question in regards to “Why not a not-for-profit?”). So, why not ask the most logical follow-up question of those who are the most concerned for the un/under insured: “Absent public funding for the un/under insured, would you be willing to make tax deductible contributions to a not-for-profit health insurer so as to lower costs and/or expand the coverage of the insured?” If the majority answers “No!” then U.S. legislators have no business in moving forward with legislation that provides additional healhcare and should also eliminate Medicaid. If the answer is “Yes.” then this should be the model going forward – with legislators butting out and simply offering their public comments endorsing and encouraging a not-for-profit endeavor.
Respectfully,

Well, the accounting games, concerning government vs private programs always do get gamed, by the statists.

For example, the “Capitation rate” or the amount that the government sends to MAPD plans (Medicare Advantage w/ Prescription Drug) is about $830,00 per month, in addition to the Part B premium.

However, that figure is arrived at by an average of the CLAIMS paid by Medicare, in your geographic area.

No accounting is made for the staff required at Medicare, to handle claims and do service work, in these figures.

It is entirely possible that these MA and MAPD (Part C) plans actually save the government some money, in many cases.

Especially because they DO provide preventive care and some options that regular Medicare A and B do not provide.

However, the Marxists in Congress refuse to give Medicare Advantage an honest accounting, and are slowly cutting back on this “privatized” program.

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