Why The Public Option Is Not Essential to Reform

O.k., let's do the math: If the public option favored by many Democrats had passed the Senate Finance Committee, and if Congress adopted a bill that included it, about 8 million people would enroll in a government-sponsored health plan, according to the Congressional Budget Office. Assuming there are about 300,000 primary-care physicians in the U.S., and that every single one of them participated in the public plan, that breaks down to 27 patients per primary-care doctor. And, since most people are not seriously ill at any given time, specialists would see far fewer publicly enrolled patients.

My point is that, whether the government offered to pay physicians and hospitals at Medicare rates (as Sen. Jay Rockefeller proposed) or negotiated rates with them (Sen. Charles Schumer's proposal), there would be little reason for physicians to participate in a plan that paid them substantially less than commercial payers did. That being the case, a public option, as currently conceived, would be unable to reduce insurance costs by reimbursing providers at below-market rates.

It is true, as Schumer notes, that a public plan would not have to turn a profit or satisfy stockholders; but it would have to break even, if it were not subsidized by the government. And, as the history of not-for-profit insurance plans shows, they behave pretty much the same way that for-profit plans do in the marketplace. They must do the same things that the for-profit plans do-such as refusing to pay for non-covered tests and treatments and driving hard bargains with providers-or they would lose money. Alternatively, they could raise rates; but if they increased them more than their for-profit competitors did, their members would desert them. All of this would be true of a public plan-which, by the way, would have the same marketing and administrative costs as private plans do. The notion that a public plan would have the low administrative expense ratio of Medicare is a fantasy, because Medicare has a built-in membership and does not have to compete with other plans.

Somehow, the CBO found that a public plan could save $50 billion over 10 years within the framework of Sen. Max Baucus' reform bill. I'm not sure what assumptions were used; but, even if they are reasonable, $5 billion a year in a $2.5 trillion system is hardly even pocket change.

Yet, despite this overwhelming arithmetic, the Democrats have managed to persuade a large part of the country that a public plan is essential to healthcare reform. Consider these remarks from Mary G. Wilson, national president of the League of Women Voters:

"The public option is the key to consumer choice and to lowering health care costs. Both are essential elements of health care reform. The Finance Committee's failure will hurt consumers and result in higher costs. How could they be so short-sighted?"