Health Care Debate – The Public Option Nonsense

posted by Nima

July 22, 2009 · Posted in Government 

President Obama, a few days ago, had the following to say about a public health insurance “option”:

“I am pleased by the progress we’re making on health care reform and still believe, as I’ve said before, that one of the best ways to bring down costs, provide more choices, and assure quality is a public option that will force the insurance companies to compete and keep them honest,” the president said in the statement. “I look forward to a final product that achieves these very important goals.”

Let me explain in real simple terms why this is utter nonsense that should offend everyone’s intellect.

A public option means that the government establishes a group that takes on the task of insuring individuals. This group of bureaucrats will obtain subscriptions by advertising its insurance service to the public. They will be competing with other providers on the market. They will charge insurance premiums and collect money. They will pay out money to clients to the extent that the event that the client suffered is insured under the agreed upon terms. How much money they collect and what they insure has to be based on sophisticated mathematical formulas that ensure that the money collected from the insured is not squandered immediately.

So far so good. There is no big difference in what I outlined above between the group established by the government and any other health insurance company.

But where does the money come from that is used to establish this group? It is of course funded out of tax money, money that needs to be taken from individuals by compulsory means. In addition to that, the public option plan will of course be subsidized. The government will have to levy higher taxes on the people in order to continuously transfer this money to the newly established group. This may or may not enable them to charge lower prices to the consumers.

If it does, then the lower prices have been accomplished by theft via taxation, money that will be missing elsewhere. Money that they may have had to pay for a private insurance whose prices now appear higher than the public plan. But this has nothing to do with competition. This is classic crowding out of private businesses by the means of compulsory taxation.

There is only one way the public plan could possibly be called a public option. And that is if the government were to tell taxpayers: You have the choice to pay us an additional amount of x Dollars in exchange for ownership stakes. This money will be used to establish the new health plan, rent facilities, hire people, etc. And then on top of that, the government would have to guarantee that absolutely no tax dollars will be used to subsidize the newly established group. It would completely have to stand on its own legs. The person in charge would need to be paid out of what is left over after all other individuals have been paid.

You may have noticed that what I outlined above is simply a business, established via voluntarily contributed start up money, kept alive via revenue, and forced to earn an entrepreneurial profit, and potentially suffering a loss.

If this is what Barack Obama has in mind then he is free to get right on it. He could even be the entrepreneur in charge if he so desires. He would not need to summon Democrats and Republicans to his office for discussions, he wouldn’t have to travel through the country in order to hold one speech after another, having to defend his public option.

But obviously this is not what he has in mind. He wants to give us another taste of the inevitable Trouble With Bureacracy. He is thinking of yet another tax funded and subsidized government office. One simple question for Mr. Obama: He is saying a public option will force insurance companies to compete. Who forces the public option to compete?

This is obviously nonsensical … the ability to obtain tax money is the exact opposite of competition. But if the public option is under no pressure to compete, then how can it possibly force the existing businesses to compete?

(Please note that what I wrote above is rather forthcoming to the President’s argument. It assumes that currently we have a private and competitive health insurance market. But this is not the case. We already have a heavily bureaucratized and subsitized health care system. Thus some of the negative effects I outlined above are hurting us already. The Obama plan would merely add to this.)

We don’t need more of the same. We need health care reform, and we need it now.

As I explained before:

… if we truly want to fix the US health care system, that means lowering prices for health care services and products, we need to take those facts into account.

Any proposal that suggests even more government involvement, decrees, and spending than we already have, needs to be rejected unconditionally.

If you want to look for true solutions, listen to those people who recommend the opposite of what we have been doing for the past decades, and in particular the past 8 years, during which President Bush presided over an increase of public health care expenses on the federal level of no less than 100%.

Listen to the people who recommend to get the government out of health care, to spend less on Medicare and Medicaid, and to get rid of government decrees and rules that aim at regulating the market for health products and services.

Only then will the dream of affordable health care for every single American become reality.

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