Comment on Robert Reich post "The Final Sprint for Health Care Has Now Begun, and Where the White House is Placing Its Bets"

A comment I made on this post:


Well, I actually thought the president's speech was pretty good. I thought the most noteworthy thing the president said was:

"Despite all this, the insurance companies and their allies don't like this idea. They argue that these private companies can't fairly compete with the government. And they'd be right if taxpayers were subsidizing this public insurance option. But they won't be. I've insisted that like any private insurance company, the public insurance option would have to be self-sufficient and rely on the premiums it collects." (emphasis mine)

For months now I and others have been arguing that the public option is not fair competition and would drive the private insurers out of business, but nobody in support of the public option would directly address this issue (e.g. I don't believe Robert Reich has ever directly addressed the unfair competition via subsidies issue). And now, in front of the whole country and world, the man at the top directly admits in clear language that this is true. So that should be some vindication for us who have argued so.

So if President Obama is being honest, he is saying that this public option will essentially be just like a non-profit health insurance company, not getting any taxpayer subsidies. But still, even without direct taxpayer subsidies there is still importantly the indirect subsidy (i.e. the market's belief that Uncle Sam will step in to save the day if things go awry, just like what happened to Fannie and Freddie). And how can we ensure that this new public option will really and truly have to stand on its own from now on --- several years from now the political climate could change and the public option could get direct subsidies. Would it be possible to write the legislation to really rule this out? And where is it going to get its initial seed money to start up --- who is going to provide this?

So in the end if we do create this public option and it honestly does not get any direct taxpayer subsidies, it will still have the indirect, implied backing of the government subsidy, which is substantial I think. Also, maybe it will be more cost efficient than private insurers (e.g. less administrative overhead, smaller salaries for its workers, etc.) But then again, if guaranteed coverage and no recission (and everybody is required to have coverage) are all part of the plan, as is most likely, then the adminstrative costs of all the private insurers will also go down (no use spending resources on recission when its against the law). So maybe in the end the public option wouldn't really have that much lower costs. I guess we'll see. It will probably have the scale to negotiate prices for drugs, doctors, and other services, which the establishment hates. I guess this negotiating power makes it still worth it to the president. But it won't be as bad as some of us had feared I guess.