An Up-Front Wager?

by Reihan Salam

Ezra Klein writes:

Liberals don’t think that Congress will pass a bill outlawing private insurance. They don’t think the Supreme Court will render a decision naming WellPoint “cruel and unusual.” Rather, they think the market will, well, work: The public option will provide better service at better prices and people will choose it. Or, conversely, that the competition will better the private insurance industry and that people won’t need to choose it.

But that confidence rests on a very simple premise: The public sector does a better job providing health-care coverage than the private sector. If that proves untrue — and I would imagine most every conservative would confidently assume that that’s untrue — the plan will fail. The public option will not provide better coverage at better prices, and so it will not be chosen, and it will languish. Indeed, if it languishes, it will lack customers and thus lack bargaining power and economies of scale, and get worse even as the private insurers get better. In that scenario, the public option not only fails, but it discredits single-payer entirely.

Well, it depends on the relative advantages given to the public sector and the private sector, doesn’t it? If the public option is allowed to negotiate reimbursement rates that private insurers can’t also use and if private insurers are regulated in such a way that they can’t define the mix of benefits and providers they offer (to avoid adverse selection), providing better coverage at better prices is fairly straightforward. How is this an up-front wager? If, in contrast, the public option is not allowed to leverage its publicness, and it has to offer the same reimbursement rates as private insurers, the public option is toothless. 

The real goal, as I understand it, isn’t benchmarking for its own sake. Rather, it is to restrain private insurers in an environment in which private insurers will have the benefit of a captive marketplace — thanks to the individual and employer mandates – and no strong incentives to reduce costs and premiums.

A better approach would, as Harold Luft has argued, allow private and public insurers (i.e., Medicare Advantage plans, state Medicare plans, etc.)  to contract with a publicly-chartered Major Risk Pool that would gives healthcare providers a choice of either accepting Medicare rates with no balance-billing or episode-based payments to care delivery teams with balance-billing. This would encourage greater efficiency among providers without imposing new regulations. 

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.