Questing for Atlantis

As everyone who reads this blog can obviously see, I was at the “Response to ObamaCare” event held today as a response to one-sided discussion President Obama decided to have with ABC on healthcare reform. Overall it was pretty interesting, but I didn’t learn a terrible lot I didn’t know (but then again, I figure I probably am a bit more informed on this issue than the average person – I’d love to hear what others thought of it).

One of the big topics that really gets me though is the public plan. The Left, all the way from President Obama on down keeps adamantly insisting that the public plan (better termed the government-controlled option, no need to keep reinforcing that collectivist myth that state and society are one and the same) will not drive out private plans, and that if it does, it’s only proof that it is working since it is competing more efficiently. Just to give an example of this sort of inanity, read this comment from our president (quote comes courtesy of Ezra Klein):

Why would it drive private insurance out of business? If private insurers say that the marketplace provides the best quality health care; if they tell us that they’re offering a good deal, then why is it that the government, which they say can’t run anything, suddenly is going to drive them out of business? That’s not logical.

No one I know of that is a proponent of free market based reforms has ever claimed the government will crowd private insurers out of the market because the government is more efficient. The problem isn’t that the government is somehow more efficient, the problem is the government doesn’t play on a level field when it gets into an industry.

But “A HA!!!” you say, Chuck Schumer has put forward a set of proposals designed to ensure the public plan competes fairly. Fact is, his proposals are worthless. I’d wager he knows it. I’d be shocked if people like Matt Yglesias and Ezra Klein didn’t think so, I disagree with them on most issues, but they’re clearly smart.

To begin with, Schumer’s first proposal, that the plan be self-sustaining and not collect money from tax revenue or government appropriations is a wonderful thought. The disconnect between inputs and outputs stemming from taxpayer funding is the biggest reason the government crowds out private industry. It wouldn’t completely fix the threat of crowd-out (more on that later) but it would go a long ways.

Ufortunately, Schumer can only say that because it has a snowball’s chance in hell of happening. The government’s primary competitive advantage is that in can offer below market prices because its inputs aren’t connected to its outputs. A private company cannot give out more than it takes in (not in the long term anyway). A government-run option can because if it has a shortfall it can always get it from the taxpayers courtesy of an emergency appropriation or monetized debt.

And even if the plan were passed with Scumer’s provision, who honestly thinks it will stay that way when the administration can’t keep a simple promise to have bills up online for 5 days of public viewing before considering whether or not to sign them?

Setting all that aside, the government-controlled option will still crowd out private insurers under Schumer’s proposals. It’s right there in his second point. Sure the public plan will pay doctors and hospitals more than Medicare does. But most estimates I’ve seen say that increased amount will something along the lines of 5% more than Medicare. Considering that Medicare pays doctors about 20%-30% less than private insurers, a good part of the public plan’s low premiums are going to come from stifing doctors.

No doctor just absobs those costs, he or she just shifts them over to the privately insured. Everytime this happens the cost of private insurance goes up, so peopel will be continually priced out of it and into the public plan, until such a point as so few people can afford private insurance that most everyone is on the public plan. No private company could pull that kind of stunt, every doctor and hospital would refuse to work with them. So much for a level playing field there.

Look, if the Left wants to have a government-controlled option as part of the healthcare reform I’m all for discussing the issue. That means we have to be honest though. There is no possible way a public plan can avoid crowd out unless it gives up all of the points which separate it from private plans – and I simply cannot believe that smart people on the Left do not know this.