Support the Bad Plan!

I can only conclude from Paul Krugman’s most recent column on the Baucus plan that he’s so desperate to pass anything called “healthcare reform” that he’s willing to support a plan that most Americans don’t want, that doesn’t provide healthcare insurance coverage for all Americans, that just kicks the can down the road on solving the manifest problems with our current system, and that will only make our fiscal problems that much more intractable.

Nowhere in the column does he mention expanding healthcare insurance coverage. Presumably, that is no longer part of the narrative. The changes he recommends to the Baucus plan are to strengthen the employer option, spend more money, and retain the public option:

First, it bungles the so-called “employer mandate.” Most reform plans include a provision requiring that large employers either provide their workers with health coverage or pay into a fund that would help workers who don’t get insurance through their job buy coverage on their own. Mr. Baucus, however, gets too clever, trying to tie each employer’s fees to the subsidies its own employees end up getting.

That’s a terrible idea. As the Center on Budget and Policy Priorities points out, it would make companies reluctant to hire workers from lower-income families — and it would also create a bureaucratic nightmare. This provision has to go and be replaced with a simple pay-or-play rule.

Second, the plan is too stingy when it comes to financial aid. Lower-middle-class families, in particular, would end up paying much more in premiums than they do under the Massachusetts plan, suggesting that for many people insurance would not, in fact, be affordable. Fixing this means spending more than Mr. Baucus proposes.

Third, the plan doesn’t create real competition in the insurance market. The right way to create competition is to offer a public option, a government-run insurance plan individuals can buy into as an alternative to private insurance. The Baucus plan instead proposes a fake alternative, nonprofit insurance cooperatives — and it places so many restrictions on these cooperatives that, according to the Congressional Budget Office, they “seem unlikely to establish a significant market presence in many areas of the country.”

Something that puzzles me in the emphasis on the public option is why is it being federalized? Rather than analogizing healthcare reform to Medicare why not use Medicaid, which is administered by the states, as a model? That would be closer to the Canadian model in which the provinces are responsible for the healthcare system rather than the federal government in Ottawa. We’re a big, diverse country and we’re culturally closer to Canada than we are to Luxembourg. You’d think that the Canadian model would be more applicable to the American situation than that of the Netherlands, Luxembourg, or even France.

Perhaps proponents of the public option are hoping to capitalize on the popularity of Medicare to carry their plan across the finish line.

Every poll I’ve seen on the public option including the New England Journal of Medicine poll of physicians leads me to the conclusion that Americans prefer choice in healthcare and approve of a public option to the extent that it provides increased choice. I’d approve of it for that purpose myself.

However, it’s hard for me to see how a public option that doesn’t function under the same rules as private insurance plans and can draw on the public purse in case of revenue shortfalls won’t drive private insurance plans from the market and actually reduce choice. At least plans run by the states could be made to function under the same restrictions that prevail in the various states. Could a federal public option be made to do so?

16 comments… add one
  • PD Shaw

    I think your last question answers the first. The states don’t have licenses to print money, so in tough times, many state-run health care programs will not be able to pay the bills. As I understand it now, many states aren’t paying the Medicaid bills.

  • Andy

    It will be interesting to see what progressives are willing to sacrifice to keep the public option considering it’s pretty transparent they see it as a big step on the road to single-payer.

  • Andy

    Also, it seems very few people are discussing other ways to increase competition in the insurance market. One obvious option is regulatory reform.

  • PD Shaw

    To me competition in the insurance industry is overlooking the forest for a few trees. My insurance company reports 6% administrative overhead costs and 3% profit. I also notice from bills that they have negotiated with healthcare providers in the area to pay only 80% of billed charges.

    I suspect there is something anti-competitive about whatever deal my insurer has worked out with local healthcare providers. Could a new insurance provider enter the market and compete without a policyholder base? Would more competition increase healthcare costs because fewer insurance companies mean greater leverage for the insurance company in restraining healthcare costs?

  • Could a federal public option be made to do so?

    The only way I see this working at all is if we allowed private insurers to sell across state lines. That’s not on the table, though.

  • PD Shaw

    Is there a law that prevents private insurers from selling across state lines? I’ve seen this said a lot, but I haven’t seen any reference to the law in question. I’ve been particularly confused since a writer at CATO complained that a California resident couldn’t get cheaper healthcare insurance from Nevada. Maybe, just maybe, healthcare is more expensive in California, than Nevada, and it has nothing to do with which Blue Cross division you get your insurance from.

  • Is there a law that prevents private insurers from selling across state lines?

    It’s not that there’s a law against it, PD. It’s that products available in one state may not be available in a neighboring state due to differing insurance regulations in the two states.

  • PD Shaw

    But that’s true of all insurance. Auto insurance mandates are different between Illinois and Alabama. I can’t expect to buy an auto policy from Alabama and bypass Illinois mandates, unless the federal government outlaws state regulation. Is that what this is really about? I think we could do with fewer mandates on health insurance, which might make it slightly less expensive, but I’m skeptical that we won’t get “on average” the same result at the federal level.

  • I can understand why someone living in Minnesota or Washington or Utah or one of the other well-run states might want the states playing a greater role. But, dude: Illinois? Or my current residence, California?

    Illinois would steal your premiums outright and California would triple them.

  • PD Shaw

    good point, michael. Maybe states should be allowed to enter the insurance markets once they’ve passed some sort of fiscal prudence examination. Say something like making their pension funds actuarially sound.

  • Brett

    I can understand why someone living in Minnesota or Washington or Utah or one of the other well-run states might want the states playing a greater role. But, dude: Illinois? Or my current residence, California?

    Illinois would steal your premiums outright and California would triple them.

    You could partially waive sovereign immunity so that people could sue the program if it doesn’t hold up to what it would be supposed to do (provide coverage according to the regulations).

    Something that puzzles me in the emphasis on the public option is why is it being federalized? Rather than analogizing healthcare reform to Medicare why not use Medicaid, which is administered by the states, as a model? That would be closer to the Canadian model in which the provinces are responsible for the healthcare system rather than the federal government in Ottawa.

    God only knows, since a federalized public plan would be much closer to ground, politically speaking, and hopefully better able to pick compensation rates than a federal plan. My guess it it’s a combination of Medicare-love and some hidden hope that we can abolish the state insurance regulation system and move towards a set of national regulations. A federalized public plan would more or less entrench the state insurance regulation system.

    However, it’s hard for me to see how a public option that doesn’t function under the same rules as private insurance plans and can draw on the public purse in case of revenue shortfalls won’t drive private insurance plans from the market and actually reduce choice.

    Does public housing and housing support – such as actual public housing development, Section 8, vouchers, etc – drive out the real estate industry? I could see some concern if the plan was the equivalent of Medicare – fully federally funded, little-to-no premiums, heavily extensive – but I think you might be under-estimating the robustness of the market.

    As is, Obama’s public plan sounds more like the creation of the health care equivalent of the Post Office. They’d get some support in set-up for capital expenses, but after that they’d have to rely entirely off of collections off the customers, who presumably would be getting some type of voucher and/or subsidy if they were poor enough.

  • PD Shaw:

    Say something like making their pension funds actuarially sound.

    Here in California we are not exactly into fiscal prudence. “Not exactly into” in the same degree that North Korea is “not exactly into” democracy.

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