Wednesday, September 9, 2009

Krugman on the Public Option

Sorry, I haven't done any interesting cooking and am sort of obsessed with healthcare right now... hopefully I'll be back to normal in a bit. But anyway... as someone who is not convinced that a public plan is a good hill for healthcare advocates to die on, I thought I should address Paul Krugman's post from yesterday. In it, he gives three reasons as to why he believes a robust public option is necessary for health care reform to succeed:
...I suspect that Ezra and others understate the extent to which even a public plan with limited bargaining power will help hold down overall costs. Private insurers do pay providers more than Medicare does — but that’s only part of the reason Medicare has lower costs. There’s also the huge overhead of the private insurers, much of which involves marketing and attempts to cherry-pick clients — and even with community rating, some of that will still go on. A public plan would probably be able to attract clients with much less of that.

What he means by "limited bargaining power" is that, even in the more progressive House bills floating around, any public option is going to be available to a relatively small pool of people. From what I've read, it's only going to be an option for small businesses with 20-50 employees or something in that range... so it's not a plan I, or most Americans, could buy into even if we wanted (and I probably would). If you look at Nick Beaudrot's chart, it's something like 10 million people... some with subsidies, some without. So it's not going to have the massive bargaining power of Medicare to dictate prices they pay for services... but still, it's nonprofit so Krugman argues it won't have to pay so much "overhead".

However, this doesn't make a whole lot of sense to me since there already are a lot of nonprofit insurance companies... Massachusetts is dominated by them for instance (Harvard Pilgrim Health Care, Tufts Health Plan, Fallon Health Plan and Blue Cross and Blue Shield of Massachusetts are the big ones I know of). Despite this, we still have the highest premiums in the country. Of course, there is the argument that the bulk of the increase in our premiums is due to the 2006 reforms that gave us an individual mandate and some subsidies and not much else. However, in a State of roughly 6.5 million people, having nonprofit plans has not ameliorated costs. Unless there's something specific about the "public option" that makes it significantly different from what we have here, it seems to me to be magical thinking it is going to do much to contain costs.

On the other hand, Krugman's next point:
...a public plan would probably provide the only real competition in many markets.

Which I think intersects his third:
Remember, to make reform work we have to have an individual mandate. And everything I see says that there will be a major backlash against the idea of forcing people to buy insurance from the existing companies. That backlash was part of what got Obama the nomination! Having the public option offers a defense against that backlash.

What worries me is not so much that the backlash would stop reform from passing, as that it would store up trouble for the not-too-distant future. Imagine that reform passes, but that premiums shoot up (or even keep rising at the rates of the past decade.) Then you could all too easily have many people blaming Obama et al for forcing them into this increasingly unaffordable system. A trigger might fix this — but the funny thing about such triggers is that they almost never get pulled.

Emphasis mine. As mentioned above, we in Massachussetts have an individual mandate and the highest premiums in the country... while I don't believe a casual link has been established, it's still reasonable to expect that we might see a similar thing on a national level a coverage is expanded... even though the bills in Congress go much, much farther with consumer protections and subsidies.

Specifically, in areas where there is no competition, you could conceivably be stuck with an insurance plan that both costs a lot and doesn't cover much. This is why I like the initial details we're hearing about Olympia Snowe's public trigger, since it would specifically bring a public option to areas like this. However, we have no idea right now whether Krugman is right, and it will be set-up in such a way as to never trigger.

Regardless... is it really true that people will blame Obama if premiums continue to increase? Why wouldn't they blame Republicans, who are fighting every cost control effort with talk of "death panels" and the like? I'm just not sure I see why increasing costs can't be dealt with down the line... yeah, it's a punt, but I thought that was basically always the plan?