The Right Prescription

Obama’s False Choice

How the so-called "public option" for health insurance would deny consumers choice, prevent real competition, and usher in government-run health care.

By 4.10.09

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In 2003, then Illinois state senator Barack Obama described himself to an approving AFL-CIO audience as a "proponent of a single-payer universal health care plan." Single-payer, the health care panacea for progressives, is a more academic way of describing a socialized system in which government is the sole purchaser of medical care.

At the time, Obama cautioned, "we may not get there immediately, because first we've got to take back the White House, and we've got to take back the Senate, and we've got to take back the House."

Six years later, Democrats have taken over both chambers of Congress and Obama himself now resides in the White House. These days, he describes single-payer as the ideal model "if we were starting from scratch" but recognizes that too much is vested in the current system to scrap private insurance entirely.

The solution he proposed during the campaign, one which is likely to appear in some form in whatever health care proposal Democrats draw up in Congress, is to create a new government-run insurance plan.

Americans, who would be eligible for government subsidies, would theoretically be able to choose between the so-called public option and other private options in a national insurance exchange run by the federal government. President Obama said at last month's White House summit on health care that the presence of a government-run plan would "help keep the private sector honest." In reality, it is just a clever way of migrating more Americans to government-run health care so that liberals can realize over time a single-payer dream that they cannot get to immediately.

Proponents of creating a government-run plan have appropriated the language of conservatives to tout it as bringing more "choice" and "competition" to the market. It represents neither.

In an effort to convince Americans that they would have genuine options, President Obama has told them that his vision would allow those who are happy with their current plans to keep them. However, under the current employer-based insurance regime, less than 6 percent of individuals actually purchase their own health care, meaning that if employers are enticed to dump their workers into the government system, many Americans would have no choice but to change plans.

In fact, if the new government-run option is open to all employers, as many as 131 million people would enroll, according to a study by the Lewin Group. This would reduce the number of people on private insurance by two-thirds, or 119 million, and go most of the way toward a single-payer system. (If the option is limited to smaller employers, the shift would not be as dramatic, but still high at 32 million.)

Proponents of the government-run plan argue that if private enterprise is so superior, insurers shouldn’t have a problem competing against the government. But it would be hard to achieve a level playing field when the federal government would be running the national health care exchange, setting the rules of the game, and subjecting insurers to heavy regulation.

In true free market competition, private enterprises that lose money are forced to go out of business. But as Robert Moffit of the Heritage Foundation notes, it's unlikely that the government-run plan would be allowed to fail.

The Lewin analysis predicts that the if the government-run plan pays doctors and hospitals at the lower rates than currently prevail under Medicare, then it could achieve premiums 30 percent lower than similar private plans. If government can create a cheaper plan, some may ask, then what can be wrong?

For one thing, right now, doctors and hospitals make up for the lower reimbursements they receive for treating Medicare and Medicaid patients by jacking up prices on those with private insurance. The practice, known as cost shifting, has been estimated to cost consumers nearly $90 billion a year, according to a study by Milliman Inc. If the private sector shrinks substantially, however, it's not clear that it would still be able to subsidize government plans in this manner.

But assuming the new government plan is able to get away with paying lower rates, Lewin estimates it would reduce hospitals' revenues by $36 billion in 2010 and doctors' earnings by $33 billion. As it is, an increasing number of doctors are refusing to take Medicare because of the low reimbursement rates -- it's likely that even more would opt out of the system if their earnings were shrunken further.

"If services cannot be paid for, eventually, services cannot be provided," Jane Orient, executive director of the Association of American Physicians, told TAS.

Becoming a doctor requires at least 11 years of education and training (including college), and students graduated medical school with an average debt load of $139,517 in 2007, according to the Association of American Medical Colleges.

"How can you incur the debt that's now required to go to medical school if you have no prospects of ever paying it back?" Orient said.

Doctor shortages, long lines, waiting lists, and rationing of treatment -- hallmarks of socialized health care systems throughout the world -- are likely to come to America as the system transitions to a single payer health-care model.

Many progressive groups intend to make the creation of a new Medicare-like plan their hill to die on in the health care fight. "If Barack Obama's health care plan gets changed to exclude a public option like Medicare, then it is not healthcare reform," declared Howard Dean in organizing a petition drive. Yet the existing Medicare program (which covers 36 million people) is running a long-term funding gap of $36 trillion, while Medicaid  (which covers 39 million people) is crippling individual states. If we can't afford the government-run care we have, potentially adding 131 million more Americans to the rolls will only make our looming entitlement crisis even more severe.

There's no need to make a false choice between a government-dominated health care sector and the broken system we’ve already got. Instead, we can create real choice and competition by changing the tax code to allow individuals the same tax advantages for purchasing insurance on their own as they now enjoy for purchasing it through their employers. This way, Americans wouldn't be restricted to enrolling in whatever health plan their employer happens to choose for them.

Also, government should remove onerous benefit mandates that currently require insurance companies to cover things as arbitrary as in vitro fertilization and lockjaw disorders, thus inflating the price of insurance.

In an actual free market, people would be able to purchase the amount of insurance they want and insurers could tailor policies to the individual health care needs of our diverse nation.

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About the Author

Philip Klein is The American Spectator's Washington correspondent. You can follow him on Twitter at: http://twitter.com/Philipaklein