Robert Reich, Bill Clinton’s Labor Secretary, has the answer in today’s Wall Street Journal. According to Mr. Reich, a “public option” (actually a swamp of new government bureaucracies, ready from “day one” for perpetual taxpayer bailouts), would “squeeze” the profits of private health providers. It is dead easy for government to “squeeze” profits. But that is not a valid goal of health reform. A valid goal is to squeeze the profits of providers who fail to satisfy patients’ needs, and allow those who do to earn increased profits. Patients are capable of doing this, but government is not.
Mr. Reich claims that the government would have economies of scale larger than private insurers. No doubt it does, but it also has massive diseconomies of scale that far outstrip its advantages. That’s why we would never let the government set up a “public option” for groceries, housing, or clothing: We all know that it would fail to provide quality or choice. However, its failure would not lead to extinction but perpetual taxpayer bailouts.
Mr. Reich repeats the fallacy that Medicare’s administrative costs are lower than private plans. This argument refuses to die despite the fact that it is preposterous: In a 2007 study, Benjamin Zycher of the Manhattan Institute showed that the oft-cited 3 percent figure refers only to administrative costs reported directly in the Medicare budget. Including federal administrative functions performed by other agencies, raises the figure to 6 percent. Zycher also includes the hidden economic costs of the federal tax system, which raises the administrative cost of Medicare to a minimum of 25 percent of Medicare outlays. That is about double the 11 percent to 14 percent administrative cost of private health insurance.
Linda Gorman points out that if the government really wanted to allow the private sector to compete with government bureaucracies, they’d allow beneficiaries of Medicaid, Medicare, SCHIP, and other government programs to take those dollars as vouchers and spend them as they saw fit.
Nevertheless, Mr. Reich has a point: Americans lack true choice of health insurance. Senator Charles Schumer believes that “one or two private insurers have a stranglehold on the entire market.” Actually, it’s worse than that: In the employer-based system, most workers have no choice of plans. If we reformed the tax code to give families who purchase their own insurance the same tax relief as employees, they’d have a lot more options.
This blog entry originally appeared in the John Goodman’s Health Policy Blog website.