Why Obama’s Public Option Would Lead to No Option

by Pearl Hahn 

American citizens who value choice and freedom have done it again. They rallied enough to force President Obama to back away from single-payer health care following his election. This week, the Department of Health and Human Services Secretary, Kathleen Sebelius, announced that a public option is no longer an essential element in national health care reform. Despite these victories, the fact remains that a majority in Congress are intent on passing health care reform that would greatly increase the scope of government in the most personal aspect of our lives. Lawmakers are still turning to mandates and other regulatory means to cover the uninsured in the nation.


It appears the Obama administration is now promoting a government “co-op” in lieu of a public option. A co-op may appear to be a watered-down version of Obama’s original proposal, but the truth is that a co-op is really a public option. The difference is only in the semantics. A co-op would be run by-you guessed it- the government, under Secretary Sebelius. While proponents like Senator Conrad claim such a plan would be non-profit and non-government, taxpayers would be providing the initial funding and the government would be setting the rules.


A co-op would effectively put the country on a one-way track to a government controlled health care system.


Here’s how it will happen.  From its inception, a government-run plan would have an innate advantage over all other plans because it would be subsidized by taxpayers, allowing it to maintain artificially low premiums and offer extra benefits. Shortfalls could be covered by loans from the government or tax hikes. Subscriptions would be high as consumers would naturally be drawn to a cheap, high-benefit government program, heavily undermining private insurers that would be left with few measures to compete.


Having established market dominance, the government program would then be in a position to reimburse providers and hospitals at very low rates. (We can already see this with Medicare and Medicaid, which typically pay providers about 25 percent less than private insurers.) Providers and hospitals need to earn their income somehow, the easiest way being to charge much more to those under private insurers. According to Ronald Williams, CEO of Aetna, cost-shifting forces patients under private insurers to pay an additional $89 billion each year.


This summer, the American Medical Association (AMA), the nation’s largest physician organization, advised Congress against a government-sponsored insurance plan in regards to the dangers of cost-shifting, cautioning that “the corresponding surge in public plan participation would likely lead to an explosion of costs that would need to be absorbed by taxpayers”[2].


The AMA is right. Cost-shifting would launch the private market’s death spiral. Saddled with rapidly rising costs, private insurers would have no choice but to raise premiums, leading their customers to drop out and enroll in the so-called “cheaper” government plan. It would only be a matter of time for the government plan to become the only option.


President Obama remains a staunch advocate of H.R. 3200, or America’s Affordable Health Choices Act of 2009, whose stated goal is “to provide affordable, quality health care for all Americans and reduce the growth in health care spending, and for other purposes”. There is not nearly enough space to expound on the specifics of this 1,000+ page bill. Of those who oppose the bill’s elements, Obama said, “people who want to keep things the way they are will try to scare the heck out of folks, and they’ll create boogeymen out there”[3].


But many were scared of government health care before the boogeymen came along. In fact, last month, most of Obama’s Democratic colleagues in the Senate health committee voted against an amendment (sponsored by Senator Tom Coburn, himself a physician) that would require all members and their staff to enroll in any new government health plan. Senators Sheldon White and Sherrod Brown previously proclaimed in an editorial that a national plan “will offer benefits that are as good as those available through private insurance plans- or better,”[4] but funnily enough, voted against Coburn’s amendment.


The fear that a national insurance plan can’t measure up to a private one of choice is real, and lawmakers who want you in it are unwilling to sign up themselves. On top of its questionable quality, such a plan would cause the federal deficit to skyrocket.


Costs of a Government Takeover


The Congressional Budget Office and Joint Committee on Taxation completed a preliminary analysis of the cost of the America’s Affordable Health Choices Act and found that enactment would result in a net increase in the federal budget deficit of $239 billion from 2010-2019 alone[5].


Furthermore, CBO estimates key provisions of the bill, namely the mandate to have health insurance (including legal residents), expanded eligibility for Medicaid, and substantially subsidized coverage offered in new insurance exchanges would raise deficits by $1,042 billion over the 2010-2019 period[6].


While plunging our nation deeper into the red, provisions like individual and employer mandates would fail to expand coverage for Americans while raising, not reining in, health care costs.


Failures of government controlled health insurance under mandates have played out in Hawaii and Massachusetts. Hawaii, which has implemented an employer mandate since 1974, has experienced a doubling of its uninsured rate from the 1980s, when it was at a low of 5 percent, to nearly 10 percent today. Rapidly rising insurance premiums under employment-based insurance have also led employers to cut benefits, reduce wages, and lay off workers altogether, contributing to both the unemployed and uninsured rate. Currently, Hawaii’s uninsured rate is not statistically different from that of Wisconsin, Iowa, and Minnesota, none of which implement an employer mandate.


In spite of Hawaii’s woes, Massachusetts followed in 2006 with both individual and employer mandates. Massachusetts has since achieved a greater number of covered residents, but the increase in coverage was due primarily to significant subsidies, not the individual mandate. At least 200,000 residents in the state remain uninsured[7]. Health care costs in Massachusetts are also rising faster than the national average, as state health care spending increased by 28 percent since 2006[8]. Insurance premiums increased from 8 to 10 percent each year, nearly double the national average[9].


Imagine the result should the rest of the nation follow Hawaii’s and Massachusett’s example.


One Size Does Not Fit All


In addition to implementing mandates, America’s Affordable Health Choices Act would prohibit premium variances, meaning that a person in excellent health would be shelling out the same amount as a person in poor health. The young, caught in a shrinking job market, will subsidize the middle-aged who are in their peak earning years, and the fit will subsidize the obese. How many people would sign up for an auto insurance plan in which those with a reckless driving history and DUIs are charged the same as someone with a perfect record?


The problem is too much, not too little, government interference in health care. Of the nation’s $2.5 trillion health care sector, the majority, 43 percent, is shored up by the government (employers constitute 28 percent and consumers only 26 percent)[10]. As early as 2007, the Congressional Budget Office issued an alert that growth in Medicare and Medicaid— the government programs accounting for most of the spending— was “unsustainable”[11]. According to the CBO Director, increases in spending for Medicare and Medicaid will account for 80 percent of spending increases for the three entitlement programs between the present time and 2035 and 90 percent of spending growth between the present time and 2080[12]. We already have government health care, and the government is doing a poor job of managing the finances.


No one in Congress has proposed how an unprecedented level of government control over one-sixth of the U.S. economy will improve the state of health care in the country nor how it will be financed. A national health insurance plan would effectively eliminate health insurance competition in the country, burdening Americans with unforeseen debt and lack of freedom in choosing health care that best fits their needs. All of its provisions only add up to one monumental catastrophe.

Pearl can be reached at pearl@grassrootinstitute.org


[1] Levy, Noam N. Obama Appears Open to Some Health Insurance Mandates. Los Angeles Times. 6/4/2009 http://articles.latimes.com/2009/jun/04/nation/na-obama-heathcare4



[2] Pear, Robert. A.M.A. Opposes Government-Sponsored Health Plan. New York Times. 6/10/2009. http://www.nytimes.com/2009/06/11/us/politics/11health.html

[3] Elliott, Philip. Obama Looks West, to the Web in Health Care Fight. Associated Press. 8/12/2009. http://www.washingtonpost.com/wp-dyn/content/article/2009/08/12/AR2009081200245.html

[4] Their Own Medicine. 7/18/2009.http://online.wsj.com/article/SB124786946165760369.html#articleTabs%3Darticle

[5] http://www.cbo.gov/ftpdocs/104xx/doc10464/hr3200.pdf

[6] Congressional Budget Office. 7/17/2009.http://www.cbo.gov/ftpdocs/104xx/doc10464/hr3200.pdfc

[7] Tanner, Michael. Massachusetts Miracle or Massachusetts Miserable. Cato Institute Briefing Papers No. 112. 6/9/2009. www.cato.org

[8] Tanner, Michael. Massachusetts Miracle or Massachusetts Miserable. Cato Institute Briefing Papers No. 112. 6/9/2009. www.cato.org

[9] ibid

[10] America’s $2.5 Trillion Health Care Sector: Who Controls the Money? Centers for Medicare & Medicaid Services.

[11] CBO: Medicare and Medicaid Spending Growth Unsustainable. 12/1/2007. All Business.  http://www.allbusiness.com/insurance/health-insurance-government-health-medicare/8926714-1.html

[12] The Long-Term Budget Outlook. Congressional Budget Office Director’s Blog. 7/16/2009. http://www.cbo.gov/doc.cfm?index=10455

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