Democrats Ask All the Wrong Questions About the Public Option


The public option is back on the congressional docket. Last week, Rep. Frank Pallone Jr., D-N.J., the head of the House Energy and Commerce Committee, and Sen. Patty Murray, D-Wash., who helms the Senate Health, Education, Labor, and Pensions Committee, issued an open request for information on how to implement a new public health plan.

Their stated intention is to provide “quality, affordable health coverage throughout the United States.” A worthy goal — but not one the public option will achieve. In fact, the main consequence of a public option will be to shift billions of dollars in health expenses onto the federal government’s books while drastically reducing payments to providers.

That may sound promising to people in search of a free lunch. But it’ll have dire consequences for taxpayers and for the quality of American healthcare.

To justify their call for a public option, Pallone and Murray cite the recent uptick in the number of uninsured Americans. After falling for several years, they note, the number of people without coverage began rising in 2017 — and reached 29.6 million in 2019.

But insuring more Americans isn’t just a matter of expanding the availability of public health coverage. After all, one-quarter of the uninsured population is already eligible for Medicaid, which is effectively free.

Another 4.5 million uninsured Americans are eligible for zero-dollar coverage on the exchanges right now — and haven’t bothered to sign up.

Sure, Pallone and Murray could auto-enroll every uninsured American in their new public option — and eliminate the uninsured population on paper, at least. But this would do little good unless the program provided what patients actually need: access to high-quality care. The basic economic logic of a public option makes this outcome highly unlikely.

A new analysis from the Brookings Institution, a center-left think tank, concludes that the only way a public option could offer premiums that are lower than those in the private insurance market would be to cut payments to providers.

The public option’s proponents are sanguine about trying to pay providers rates similar to Medicare’s. In one recent review of 19 different studies, Medicare was found to pay roughly half what private insurers pay for all hospital services.

Doctors and hospitals are unlikely to simply swallow those payment cuts. Providers in Colorado recently helped defeat a public option push there, arguing that such cuts would put many of them out of business.

But if providers are forced to accept a public option and its low payment rates, they may respond by limiting the number of beneficiaries of the public plan they’ll see, just as many do with Medicaid and Medicare.

So people with the public plan may not be able to see the providers of their choice — or may face long waits for care.

Even dramatically underpaying for care might not be enough to keep premiums down for this new government-run health plan. Just look at the public-option experiment unfolding in Murray’s home state of Washington. That program, known as Cascade Care, caps provider reimbursements at 160% of what Medicare pays. And yet Cascade Care’s premiums are higher than some private alternatives.

Unlike states, of course, the federal government could keep premiums artificially low by running deficits. But this brings us to another major drawback of the public option — it’s enormously expensive.

An analysis by the Hoover Institution’s Lanhee J. Chen and his co-authors estimates that a public option would increase the federal deficit by nearly $800 billion over ten years. Paying for the program would require a more-than 30% increase in all income tax rates in 2050. That amounts to over $2,000 a year in additional taxes for a middle-income household.

Judging by the information request released last week — which includes a variety of questions about everything from eligibility requirements to reimbursement rates — the basic shape of Pallone and Murray’s public option proposal has not yet been determined.

There’s one question the lawmakers fail to ask. Will Americans benefit from another unaffordable, ineffective, government-run health insurance scheme? The answer, by any measure, is no. And that’s all the information Pallone and Murray should need.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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