The Public Option Comeback: The secret to its budget 'savings'? Medicare price controls.
Sounding taken aback himself, Senate Finance Chairman Max Baucus recently declared that the public option is "alive." A better term might be undead: This new government-run health insurance program akin to Medicare for the middle class continues to stagger forward, zombie-like, despite what were thought to be fatal blasts earlier this fall from Senate centrists and the House Blue Dogs—that is, from Mr. Baucus's fellow Democrats.
The public option's renewed momentum is mostly the product of the raw ideological willfulness of the progressive left. Led by Speaker Nancy Pelosi, they're not about to let a once-in-a-generation opportunity pass without a fight, and they view the public option as a down payment on single-payer health care. They're right to think so; a public option will quickly blow up the private insurance market.
In particular, Mrs. Pelosi believes she's found a political trump. A so-called "robust" public option will cost the government less than other plans, since it will pay doctors and hospitals fees pegged to Medicare's price controls on thousands of services. The Congressional Budget Office has reportedly found that these below-market payments would result in "savings" of $110 billion, compared to requiring a public option to negotiate rates with providers like a private company would.
Yet as the government pays less, the private sector pays more. Like Medicare today, hospitals will shift some of their losses into higher private insurance premiums. Meanwhile, the public option's premiums will be artificially lower, even before the heavy subsidies that Democrats plan to offer. As private insurance costs increase, private payers will lose market share, intensifying the cost-shift and precipitating an exodus to government from commercial carriers.
Democrats dismiss cost-shifting as a tall tale of the health industry. After all, if providers can increase their revenue by charging private payers more, why haven't they already exhausted this opportunity? Perhaps because, contrary to Washington's fantasy of robber baron doctors, very few hospitals behave like classical profit-maximizing firms. Most are nonprofit institutions with social missions.
The real problem is that government pays so much below costs. A 2006 study in the journal Health Affairs found that for each dollar of cost hospitals incurred, they received $1.22 from private payers and only 95 cents from Medicare. Analysts Allen Dobson and Joan DaVanzo argue that this puts hospitals "in the unenviable position of playing the role of private-sector tax collectors, to maintain their financial solvency."
It's true that cost-shifting isn't dollar for dollar. Providers can absorb some underfunding by cutting services, such as by reducing hospital stays, or investing less in research, teaching and state-of-the-art care. Yet as the Medicare Payment Advisory Commission recently noted, given decades of such Medicare-related losses, "a concern is whether hospitals can constrain costs and still deliver high-quality care." For that reason the Mayo Clinic announced this month that some of its campuses will no longer accept Medicare patients.
"The American people are so smart," Mrs. Pelosi said at a recent press conference, as she explained how stupid she thinks they are. "We are saying that rather than force them to buy health insurance from the insurance industry, let us give them the freedom to do that if they wish or to have a public option. The more you talk mandate, the higher the support for a public option becomes." In other words, one coercive government policy (the individual mandate) is forcing people to think better of another coercive government policy.
But the reality is that no one wants a public option except the political left. Doctors and hospitals hate the idea as much as insurers do—and they're far from natural allies. The media are able to counterfeit public support, such as this week's Washington Post/ABC News poll showing 57% in favor, only by asking rigged questions about "choice" and "competition." Who's opposed to that?
The negotiators crafting the Senate bill, headed by Majority Leader Harry Reid and White House Chief of Staff Rahm Emanuel, may attempt some backdoor public option. They might allow states to opt in, or to opt out. Or the new entitlement might be "triggered" if certain conditions aren't met. No one should be fooled. For liberals the key is to get the architecture in place this year and expand it over time, much like Henry Waxman and the late Ted Kennedy did with Medicaid in the 1970s and '80s.
At least for now, we still don't see how Democrats get to 60 votes with a public option. But its revival shows that the Democratic Party's left is running this show, and how radical their plans for U.S. health care really are.
