NCPA - National Center for Policy Analysis


July 13, 2009

The reason left-flank Democrats are so adamant about a public option is because they know it is an opening wedge for the government to dominate U.S. health care.  That's also why the health-care industry, business groups, some moderates and most Republicans are opposed, says the Wall Street Journal.

White House chief of staff Rahm Emanuel echoes his boss and says a government health plan is needed to keep the private sector "honest."  But if this is so, then why don't we also need a state-run oil company, or nationalized grocery store chain?  The real goal is to create a program backstopped by taxpayers that can exert political leverage over the market, says the Journal:

  • In its strongest version, the federal plan would receive direct cash subsidies, allowing it to undercut private insurers on consumer prices.
  • This would quickly lead to "crowd out," the tendency of supposedly "free" public programs to displace private insurance.
  • As a general rule, Congress has to spend $2 of taxpayer money to provide $1 in new benefits.
  • More precise academic studies of expansions in Medicaid and the children's insurance program put the crowd-out effect somewhere between 25 percent and 60 percent.

The other goal of a new public plan is to force doctors and hospitals to accept below-cost fees.  This is how Medicare tries to control costs today, but it's like squeezing a balloon: Lower reimbursements mean that providers -- especially hospitals -- must recoup their costs elsewhere, either by shifting costs onto private payers or with more billable tests and procedures.  The only way costs can conceivably be managed via price controls is if government is running the whole show, which naturally leads to severe restrictions on care while medical innovation withers, says the Journal.

Source: "The Public Option Two-Step," Wall Street Journal, July 9, 2009.

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