NCPA - National Center for Policy Analysis


June 11, 2009

The so-called public option is now included in both the Senate and House health care reform bills, and is strongly endorsed by President Obama.  Under the public option, the government would offer a plan resembling Medicare for more than 100 million working Americans.  Today, most of them are covered by their employers' plans.  But the Democrats' proposals contain a "pay or play" provision that would allow companies, in effect, to drop their coverage and substitute a payroll tax.

Because their health care costs are growing so rapidly, it's likely that most companies would dump their plans.  "That's what will happen," says John Goodman of the National Center for Policy Analysis, which champions free-market solutions to health care.  "Employees could then go to the exchanges and get subsidized insurance."

The problem here is that the public option would compete directly with the private plans, says

  • Both would be heavily subsidized, with Americans making up to $110,000 eligible for assistance under the Senate proposal.
  • It's likely that the Medicare-like option will drive out private insurers, since the government plan has several advantages.
  • The plans impose public-utility-like restrictions on the insurers, capping their profits and transferring premiums from the insurers with the younger, healthier patients to those who serve an older, sicker population.
  • Those restrictions will hardly make them nimble competitors.
  • At the same time, the imposition of costly benefits packages and community rating will raise their costs.

That the government enjoys an edge in purchasing doesn't mean that the overall costs will fall.  It's precisely the opposite.  The public plan will be so heavily subsidized that Americans will tend to over-consume expensive medical services just the way they do now under regular Medicare.  Only this time, the number of patients will be almost three times larger, says

The demand for everything from knee surgery to mental health counseling will soar.  But the government will keep a lid on prices, so Americans, for the first time, will be faced with rationing.  The hospitals and physicians simply won't be able to satisfy the unhinged demand for the services that look like a bargain.

The lines will grow.  And so will the spending, and the taxes.  And that's what Obama isn't telling you, says

Source: Shawn Tully, "Four reasons why Obama's health plan is no bargain," Fortune/, June 11, 2009.

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