Friday, September 18, 2009

Cost Control

Almost every serious proposal for health care reform tries to insure more people -- even many conservatives will agree that in the current system, we would all be better off if more people had health insurance. The public option, though, is a special way to provide that insurance, and the best thing about it (and I'm taking off my liberal 'provide health care for everyone and let God sort it out' hat here) is that it cuts costs.

This is an important point that is often lost in the heat of debate. The public option in and of itself does not insure more people -- it's not an entitlement, it's a mechanism for delivering insurance. We could ensure everybody without ever having a public option -- this is what the Baucus plan tries to do, by expanding Medicaid and Medicare. Why have the public option, then? To cut costs.

A lot's been made of the price tag of HR 3200 -- almost $1 trillion dollars over ten years, about 20-30% more expensive than the Baucus bill -- but this is the government expense, or the cost that comes out of our taxes. The costs that the public option would cut would be our private expenses, the money that comes out of our paycheck to pay for health insurance. Look at the history of an average family's health care expenditures:

(from the Kaiser foundation)

In 2007, we spent 16.2% of everything that we produced in the country -- that's one dollar out of every six -- on health-care related expenses. In 2008, we spent 2.4 trillion dollars on health care. If we could enact a plan that cost one trillion dollars but saved 5% of our yearly costs, it would pay for itself in less than nine years. Since we know, too, that 30% of all the money we pay to insurance companies is spent in the form of overhead, administrative costs, and returned to stockholders as profit, the insurance industry is a natural place to try to carve out some of these savings.

Those savings would come from competition. Blue Cross/Blue Shield currently holds 90% of the market in the state of Alabama, and has been raising its rates between 7 and 12% every year since 2003, when its last major competitor exited the market. All across the country, health insurance corporations are getting bigger and taking larger chunks of market share, as often happens in a situation where an unregulated industry gets its hands on a part of the economy where demand is inelastic (i.e. there are really very few situations in which you choose not to purchase a life-saving medicine; most people will buy health insurance no matter how much it costs) -- Enron's control over the deregulated California energy industry comes to mind.

A government option -- one which would be offered to people at cost, and would negotiate with health providers for cost decreases -- would change the competitive landscape. Companies that have long since stopped trying to attract or serve customers would suddenly have to start. Policies would become clearer, trust would start to matter (right now, what's the incentive for monopoly insurers not to deny care? They don't rely on their reputation to attract business), and most importantly, premiums and copays would start to come down. Just as private universities have to either compete financially with, or offer better educations than, public universities, so would insurers have to either do better than the government -- offer more, give better service -- or charge less. Many of the conservative objections to the public options assume that this would happen -- by saying that it's a socialist policy, they admit that it would be extremely competitive with, and threaten the profit margins of, private insurers.

Like a subway line, a public university, a city park, an irrigation canal, or a highway, a public option is a group investment, not a give-away. It's intended to, and will, create returns for government, and especially for individuals.

I've been pretty critical of the Baucus plan in recent posts -- it serves industry interests and leaves us out in the cold with regards to cost. But the insurance industry wins, as well, if we do nothing or make minor changes -- without competition, specifically the kind of competition that would be provided by the public option, we may be able to insure everyone, but we're going to pay through the nose to do it.

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