health care reform and the budgetary death trap

The talk the of the day seems to be that Obama's prepared to jettison the public option.  This is an enormous mistake, to begin with, Survey USA recently found 77% of the public supporting the public option.  Even for Senators like Landrieu, whose electoral fears are understandable, the public option is not going to be electorally dangerous, support for any bill with or without a public option might be since public opposition to health care is overwhelmingly based on misconceptions about the proposals.  This is evidently driven by whip counts rather than the nature of the public debate, since no real conversation about the public option has even begun for the most part.

The deal is that I have a hard time believing either of two things, that any health care bill that achieves universal coverage has 60 votes in the Senate, and that the public option does not have 51.  Therefore, either way we're at the point of either magically and suddenly re-framing the way cloture votes are perceived (infinitely unlikely), or we get a new Senator from Massachusetts and convince all the Dems to vote to end debate regardless of their position on the legislation itself (still unlikely but a little more plausible than the first), or budget reconciliation.  In all of those scenarios we should actually only need 51 votes for the public option, which again, I have a hard time believing doesn't exist.

This is just flatly bad policy, the public option is the only force under the proposed bills that has any ability to significantly lower health care costs, by creating a strong, nonprofit competitor to insurance companies that can deliver health insurance with very low administrative costs.  Without that public option we do get improvement, but we get a budgetary mess (ironic given that the conservative Democrats opposing the public option claim to be so concerned about the budget deficit).  What we end up with without a public option is some network of subsidies and mandates within a government regulated private insurance exchange, this brings us to near universal coverage, which is good, and there is some reason to believe that it might lower costs marginally, while Hawaii's employer mandate has some major problems, it has managed to hold costs under the national average.  So its not out of the realm of possibilities that the growth in health care costs might be kept down just by dramatically reducing the number of uninsured, but there's no mechanism to force the insurance market to lower premiums and to keep administrative costs (and profits) down.


Jacob Hacker has a very good article on this in which he compares Medicare Advantage to the traditional government run medicare program, and finds that traditional medicare has far lower administrative costs.

the Congressional Budget Office (CBO) has found that administrative costs under the public Medicare plan are less than 2 percent of expenditures, compared with approximately 11 percent of spending by private plans under Medicare Advantage. This is a near perfect “apples to apples” comparison of administrative costs, because the public Medicare plan and Medicare Advantage plans are operating under similar rules and treating the same population.

Hacker's example is even in a competitive market in which the Medicare Advantage private plans have to compete with traditional Medicare, and traditional Medicare delivers much lower administrative costs.  Some studies have challenged the assertion that Medicare is far more efficient than private insurance by deducting taxes from private insurance's non-delivery (normally referred to as administrative) costs.  There's a point to be made here regarding taxes, I'll grant that one, but to give them profits misses the entire point.  How we concluded as a society that my health should be an item that other people can profit on is beyond me.  Profits are a big part of the problem, and I'm more than happy to allow them to take a hit by trying to compete with a nonprofit government provided option, that hit is a part of where savings to the public will occur.  Without that hit, and without the public option being able to take steps to lower its costs (negotiating drug prices, pegging rates to medicare...) the public is going to take a major budgetary hit somewhere down the road.  One of the reasons we're talking about this is that health care costs will force Medicare and Medicaid spending to double over the next 30 years.  We need some force in the market to force costs down significantly, and subsidizing private insurers to cover people at 400% of the poverty level will only increase Federal health care expenditures unless something forces costs down.

Reform is good, period, having nearly 50 million Americans uninsured is unacceptable, but reform that fails to really address rising costs is just begging for trouble, its a huge mistake for Obama to abandon the public option, hopefully these rumors will not turn out to be true.  Furthermore, if he announces this in front of the AFL-CIO as is rumored, he's going to get destroyed, as well he should, its a terrible idea.