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Thursday, July 02, 2009

"Public option" will lead to government-controlled healthcare

[Obama] wants a “public option.” That’s a euphemism for a government-run health-insurance program that is to provide a competitive alternative to private, for-profit insurance. This rationale is misleading because there is already competition among insurers — and there would be far more if state governments did not restrict intrastate competition and prevent interstate competition. For example, a resident in Minnesota, whose insurance policy is burdened with dozens of state-mandated provisions for coverage he may not want (for instance, alcoholism/drug rehab and breast reconstruction), may not legally buy a policy offered in Idaho, which has far fewer mandates.

So there’s no need for a public option to create competition. All government needs to do is get out the way.

What effect will the public option have, then? Remember what it is: a government bureaucracy. That tells us something right off the bat: It will not face the market’s discipline of profit and loss or the risk of bankruptcy. It will have the taxpayers in its back pocket and thus, unlike private insurers, won’t need to charge premiums high enough to cover its expenses. In other words, in the name of keeping private companies “honest,” the public option will be able to engage in predatory pricing, with the taxpayers making up the losses.

The government’s program will also be able to strong-arm pharmaceutical companies and other vendors and providers into lowering their prices below market level. To make up for those artificially low prices, they will have to charge others more than they would have otherwise, putting private insurers at an additional disadvantage. As the disadvantaged providers and insurers exit the market, consumers will have little choice but the public option.

The upshot is that just by acting like the government bureaucracy it will be, the public option will make it difficult if not impossible for private insurers and service providers to remain in the market. Government will end up running the medical system by default if not by design.
--from "Obama the Health-Care Reformer Should Grow Up" by Sheldon Richman

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