NCPA - National Center for Policy Analysis


October 27, 2009

In the health care debate, the "public plan" is all things to all people.  For supporters, it would discipline greedy private insurers and make health care coverage affordable.  For detractors, it's a way station on the path to a single-payer insurance system of government-run health care.  In reality, the public plan, also known as the public option, is mostly an exercise in political avoidance: It pretends to control costs and improve access to quality care when it doesn't, says columnist Robert J. Samuelson.

As originally conceived by Yale political scientist Jacob Hacker, the public plan would be a government-created, nonprofit insurance company providing Medicare-like coverage to the under-65 population.  But unlike Medicare, benefits would be paid for mainly by premiums -- not taxes.  Americans could buy coverage from the public plan or a private insurer.

The promise of the public plan is a mirage.  Its political brilliance is to use free-market rhetoric (more "choice" and "competition") to expand government power.  But why would a plan tied to Medicare control health spending, when Medicare hasn't, asks Samuelson?

  • From 1970 to 2007, Medicare spending per beneficiary rose 9.2 percent annually compared to the 10.4 percent of private insurers -- and the small difference partly reflects cost shifting.
  • Congress periodically improves Medicare benefits, and there's a limit to how much squeezing reimbursement rates can check costs.
  • Doctors and hospitals already complain that low payments limit services or discourage physicians from taking Medicare patients.

Even Hacker concedes that without reimbursement rates close to Medicare's, the public plan would founder.  If it had to "negotiate rates directly with providers" -- do what private insurers do -- the public plan could have "a very hard time" making inroads, he writes.  Hacker opposes such weakened versions of the public plan.

By contrast, a favored public plan would probably doom today's private insurance.  Although some congressional proposals limit enrollment eligibility in the public plan, pressures to liberalize would be overwhelming.  Why should only some under-65 Americans enjoy lower premiums?  In one study that assumed widespread eligibility, the Lewin Group estimated that 103 million people -- half the number with private insurance -- would switch to the public plan.  Private insurance might become a specialty product, says Samuelson.

Source: Robert J. Samuelson, "Public plan mirage," Washington Post, October 26, 2009.

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