Does the ‘public option’ have to imitate Medicare?

Today’s topic: What about a public plan that isn’t modeled after Medicare? For example, how about co-ops or local plans such as L.A. Care?

Give market forces room to breathe, and costs will decrease
Point: Michael F. Cannon

The dirty little secret, Larry, is that “Obama-care” isn’t about reducing healthcare costs or making coverage more secure. It’s about robbing Peter to pay Paul.


How many young and elderly people can we rob to subsidize coverage for the uninsured? How can we leverage the 50% of health spending that government already controls to push payments below costs among the other 50%? How many special interests should we bribe along the way? (Answer: all of them.)

Supporters from President Obama right down to you assure us that consumers will come out ahead. The only losers, you assure us, will be the insurance industry.

The opposite is true: Democrats in Congress are taxing workers to pay off insurance companies. Democratic Sen. Max Baucus (D-Mont.) just proposed $774 billion in subsidies for private insurers. (Somehow, that’s supposed to be more moderate than House Democrats’ $773 billion in subsidies.)

The outrage at the August town halls came from voters realizing that under Obama-care, they’re not Paul -- they’re Peter.

“Almost every political pronouncement now emphasizes cost reduction as a central object of healthcare reform,” writes Stanford health economist Victor Fuchs. “The policy recommendations that follow, however, frequently aim at cost shifting rather than cost reduction.” Cost shifting, Fuchs reminds us, “does nothing to reduce the real cost of care.”

Real reform would reduce costs by letting individual consumers control their healthcare dollars and choose their health plans.

Eliminating the tax preference for job-based coverage would let workers control the $4,000 to $10,000 of their earnings that employers now control and choose secure coverage that stays with them between jobs. Converting Medicare to a voucher program, with larger vouchers for the poor and the sick, would protect seniors from government rationing.

Consumers will spend that money more wisely than employers or government ever could. They will drive costs down because they will personally reap the rewards.

Real reform would further reduce the cost of coverage by letting workers purchase coverage from other states. As Cal State Northridge economist Shirley Svorny suggests, real reform would also make medical services more affordable by eliminating barriers to competition by nurse practitioners and other mid-level clinicians.

Those two steps would not only increase competition and reduce costs, Larry. They would improve many dimensions of quality by helping the Kaiser Permanente model spread to other states. That sounds better than summarily kicking Kaiser out of Medicare Advantage, doesn’t it?

Our healthcare sector is a mess. Countless Americans are suffering and dying -- yes, dying -- because well-intentioned government interventions are driving costs higher, blocking innovation and leaving us with insecure coverage.

Yet the greatest strength of America’s healthcare sector is that it shows what competition can do when market forces are given room to breathe. What do you say we give market forces a little more breathing room?

But first, let’s stop the kleptocrats and kill this insurance-company bailout.

Michael F. Cannon is director of health policy studies at the libertarian Cato Institute and the coauthor of “Healthy Competition: What’s Holding Back Health Care and How to Free It.”

Let readers decide: Cato’s plan, or Obama’s?
Counterpoint: Larry McNeely

Michael, I’d like to thank you for laying out your plan to fix healthcare. There has not been enough of that from reform opponents. The consequences of your proposals, however, might not be clear to all of our readers, so let’s take a closer look at them.

The Cato-Cannon Plan

* By allowing insurers to sell plans across state lines, you would create a race to the bottom that would gut state-level consumer protections, as I argued Wednesday.

* By eliminating Medicare and substituting vouchers for private insurance, you would leave our seniors vulnerable to medical bankruptcy and destroy their well-earned healthcare security.

* By ending all state licensing and monitoring of physicians, as your economist friend Shirley Svorny suggests, not only qualified nurses but also any quack with a scalpel and some drugs would be able to set up a shingle, call himself a doctor and start cutting.

If this is what health reform opponents are selling, America is not going to buy it. On the contrary, government can and should make the healthcare and insurance industries live by a fair set of rules. And that is what health reform is all about.

Our readers can see exactly what the Obama plan means for them right here. But for your sake, Michael, I’ll lay out a few key points:

First and foremost, under the Obama plan, the words “preexisting condition” would be a relic. No one could be denied coverage options when they get sick or because they change jobs.

Small businesses and individuals who cannot afford insurance in today’s market could pool their resources and bargaining power to get better deals from the insurance companies. (See U.S. PIRG’s report on how high healthcare costs are crushing America’s small businesses.) To make sure that no one single company could dominate the coverage options in any state, a publicly sponsored health insurance plan would be offered.

Americans with insurance from larger employers could stay in their current plan, but with one key improvement: The plan would have to be affordable or the employer would have to help pay for the cost of insurance from a new health insurance exchange.

In terms of cost-containment, health reform could actually save consumers, businesses and the government trillions of dollars over the next 10 years by injecting competition into the insurance market with some form of public plan; encouraging preventive care; preserving Medicare by keeping the same benefits but demanding that providers and hospitals cut out the one out of three healthcare dollars that the Congressional Budge Office says don’t improve health outcomes; and placing a tax on insurers that offer the most expensive, gold-plated policies.

The right combination of these policies not only can trim the federal deficit but also reduce overall national healthcare costs and save money for families (see this report from U.S. PIRG for more details). The Bipartisan Policy Center, the Commonwealth Fund and CEOs for Health Reform have all come to a similar conclusion.

So let’s allow our readers to decide. Which plan do they prefer: yours, Michael, or Obama’s?

Larry McNeely is the healthcare reform advocate for the U.S. Public Interest Research Group.