Most Unexpected Comparison of the Day

From Arnold Kling:

I worry that today’s equivalent of Robert McNamara is Peter Orszag, who I fear is poised to do for our health care system what McNamara did for Vietnam.

I suspect this is a bit overheated, but the fact that Arnold’s book, Crisis of Abundance: Rethinking How We Pay for Health Care, is so outstanding makes this tough to simply dismiss.

Anyway, my similar but less dramatically stated worry, which I expressed in my latest column for The Week, is that the reforms currently on offer take the form they do because of Democratic dreams of a single-payer system, but such reforms, once they make contact with political reality, will likely produce a U.S. system that is even more of an convoluted, unsustainable mess. I think Princeton’s Paul Starr is spot on about the politics:

Some supporters favor this approach [i.e., a new “insurance exchange” offering a “public plan”] because they see it as a step toward single-payer, which is exactly what the opponents fear. Squeezed by the public plan, providers might raise prices for patients insured by private plans, sending those plans into a death spiral.

But a Congress that is not about to adopt single-payer is unlikely to adopt a Trojan horse for single-payer. Some compromise proposals — such as Sen. Charles Schumer’s — offer a second model, calling for a “level playing field” between private insurers and the public plan, including limits on the latter’s ability to flex its purchasing muscle. But tight controls on its bargaining power might doom it entirely if it faces severe adverse selection.

Here’s the delicate political problem: Depending on the rules, the entire system could tip one way or the other. Unconstrained, the public plan could drive private insurers out of business, setting off a political backlash not just from the industry but from much of the public. Over-constrained, the public plan could go into a death spiral itself as it becomes a dumping ground for high-risk enrollees, its rates rise, and it loses its appeal to the public at large. Creating a fair system of public-private competition — giving the public plan just enough power to offset its likely higher risks — wouldn’t be easy even if it were up to neutral experts, which it isn’t.

FUBAR, as McNamara’s pawns would say.

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11 thoughts on “Most Unexpected Comparison of the Day

  1. Not to post too much in one day, but why would the public plan raise rates because of high-risk enrollees? I thought the Ezra Kleins of the world were pushing the public option in part because the government would just pay for relatively cheap, necessary things like insulin injections that are very likely to be needed, going forward, by those who need them. Because they're so high-risk, it's hard to pay for them through insurance, it's more like a maddeningly complicated fee-for-service arrangement. So, too, with Matt Yglesias and his posts praising NHS clinics that use nurse practitioners, rather than doctors, to treat minor things. Sounds like your preferred mandatory insurance/savings plan policy attacks the same problem from the opposite direction — only you'd make people pay for the small, frequent stuff, and leave the really big expenses to be covered by the system. Query: is the public plan-as-dumping ground world just the opposite of your preferred policy?

  2. Actually, my own preferred policy includes a public plan but recognizes that it is a dumping ground for the uninsurable devoted specifically to rationing. The cost to taxpayers for the care of the uninsurable stays relatively low because a free market in health services and products, in which people pay for routine treatment, will lead to competition on both quality and price, pushing up quality at lower prices. So care in the government rationed plan is not good, but not very expensive.

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  5. How would a low-benefit public plan resist political pressure from medical providers to expand what it covered? I doubt that a public high-deductible plan, without subsidy, will inject enough competition to reshape the health care market.Generally speaking, it seems to me that a no-subsidy public plan is unstable. Nobody will use it, and it will get subsidized to make it more attractive. Or, it will bleed money on expensive enrollees, and the private plans will be taxed for dumping them. I believe it will be politically, and bureaucratically, unable to provide parsimonious health coverage. Hm, as an aside, why don't supporters of a public plan support more than one public plan? They could try different strategies. Why keep all of the public plan eggs in one basket? If there are some efficiencies to be gained from a public plan, who is to say that the first go at it will realize them? Of course, the real reason for only one public plan is that they want it to grow into a single payer plan.

  6. So Schumer's idea is fair competition between a public option and a private option? Does this situation exist in any other field on a national level? Maybe in mail? How well is the USPS competing with DHL, FedEx and UPS? Doesn't it still have a monopoly on letters — a segment in which the precise scenario of “low-cost benefits + losing money” is taking place?There's no way they're going to strike a balance so long as people can vote themselves politicians who will give them more healthcare benefits — it's definitely going to fall down the “more benefits/more costs” hole.

  7. “Why keep all of the public plan eggs in one basket? If there are some efficiencies to be gained from a public plan, who is to say that the first go at it will realize them? Of course, the real reason for only one public plan is that they want it to grow into a single payer plan.”Well, even if they're being honest and truly are not trying to get a single payer plan, it does reveal a certain silliness: they believe they will get it right the first time, or at least be able to consistently change it accurately to be “right enough.” These really are a group of people who think they can legislate, in one take, a public healthcare option that will compete (on its own merits) with whatever people have today. This is not to say that whatever people have today isn't, in many cases, really bad — but all the reasons they are really bad (and why it is hard to come up with a good one) are still going to apply.

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  9. The public-plan-becomes-a-dumping-ground scenario may not be such a bad thing. What if it causes the costs of private insurance to go down for all but the sickest while the care of the latter group is financed by a progressive system of taxation?

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