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Public Option Dead? Senate Panel Rejects Heath Care Plan

by Peter Suderman

Is the government-run public health-care option dead? As Katherine Mangu-Ward noted yesterday, the answer is yes, mostly. To which I would also add, probably, maybe, and for now. Although the Finance Committee has firmly rejected two public plan proposals, it's still possible—if highly unlikely—that we could see a public plan inserted into a final bill at some later point. Which means that, although the public-option piñata may be down, it's still worth giving it a few more whacks.

Here's Chuck Schumer defending the public option as a cost-saving mechanism:

Mr. Schumer said the public option would hold down costs because it would not have to generate profits, answer to shareholders or incur marketing expenses.

Well, it's not actually clear that it would be able to avoid marketing expenses. Lots of publicly funded programs have marketing budgets (Washington's Metro system, for example, which advertises incessantly within the Metro system, as if all those poor schmoes who pay 20 percent more in rent each month just to live near a Metro stop might at any time forget that it existed), and competing with private insurers would likely require public plan administrators to make some effort to let people know about their program.

But let's ignore that for a moment and assume that Schumer's statement is right. The public option, as many of its supporters have noted, would essentially be an optional variant on Medicare—which we all know has done a fantastic job holding down costs over the years, right?*

Contra Mr. Schumer, it strikes me that the profit motive is actually likely to hold down costs better than the public-service motive. Profit-seeking firms have an incentive to be more efficient and cost-effective. A government-run plan, on the other hand, would be motivated to increase (and lock in) its constituency, regardless of the cost.

It's an amazing scam, and anyone can do it. Indeed, that's part of the reason why marketing would be so likely: Government agencies want to prove their value and usefulness, but absent the normal market signals of profit and loss, they tend to do that by seeking to increase the number of people who use their services. And when you don't have to make a profit, there's a pretty easy way to do that: provide services at less than cost. Sure, that will result in losses, but look how many people make use of the program!

You follow this by asking Congress for more taxpayer money to make up for the losses, using that money to increase your constituency again, and then returning to Congress for another handout while saying, "Look how successful we've been!" Wash, rinse, repeat. Isn't bureaucracy fun?

The public plan has been dying for a long time now. I wrote about the early stages of its death all the way back in June.

*Ha-ha, right. Here's what the CBO says (bold mine): "Measured relative to GDP, almost all of the projected growth in federal spending other than interest payments on the debt stems from the three largest entitlement programs—Medicare, Medicaid, and Social Security. For decades, spending on Medicare and Medicaid has been growing faster than the economy."


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