Argument: Public insurance is unfair competition for private insurers

Issue Report: Public health insurance option


“The End of Private Health Insurance”. Wall Street Journal (editorial). April 13, 2009: “A public program won’t compete in a way that any normal business would recognize. As an entitlement, Congress’s creation will enjoy potentially unlimited access to the Treasury, without incurring the risks or hedging against losses that private carriers do. As people gravitate to “free” or heavily subsidized care, the inevitably explosive costs will be covered in part with increased outlays to keep premiums artificially low or even offer extra benefits. Lacking such taxpayer cash, private insurance rates will escalate.”

Gregory Mankiw. “The pitfalls of the public option”. New York Times. June 27, 2009: “Even if one accepts the president’s broader goals of wider access to health care and cost containment, his economic logic regarding the public option is hard to follow. Consumer choice and honest competition are indeed the foundation of a successful market system, but they are usually achieved without a public provider. We don’t need government-run grocery stores or government-run gas stations to ensure that Americans can buy food and fuel at reasonable prices.

An important question about any public provider of health insurance is whether it would have access to taxpayer funds. If not, the public plan would have to stand on its own financially, as private plans do, covering all expenses with premiums from those who signed up for it.

But if such a plan were desirable and feasible, nothing would stop someone from setting it up right now. In essence, a public plan without taxpayer support would be yet another nonprofit company offering health insurance. The fundamental viability of the enterprise does not depend on whether the employees are called “nonprofit administrators” or “civil servants.”

In practice, however, if a public option is available, it will probably enjoy taxpayer subsidies. Indeed, even if the initial legislation rejected them, such subsidies would be hard to avoid in the long run. Fannie Mae and Freddie Mac, the mortgage giants created by federal law, were once private companies. Yet many investors believed — correctly, as it turned out — that the federal government would stand behind Fannie’s and Freddie’s debts, and this perception gave these companies access to cheap credit. Similarly, a public health insurance plan would enjoy the presumption of a government backstop.

Such explicit or implicit subsidies would prevent a public plan from providing honest competition for private suppliers of health insurance. Instead, the public plan would likely undercut private firms and get an undue share of the market.”

“Health Care Competition & The Problem With the ‘Public Option'”. Clear Commentary. June 22, 2009: “the problem of competing with the government’s ‘public option’ has nothing to do with a de facto dual on the battle field of health care insurance, but rather the fact that when it’s funded by effectively limitless deficit spending, the feds can set artificially low prices to strangle private carriers into submission.

You might recall that the anti-trust laws were written to mitigate the influence of inadvertent or overt market dominance by economic powerhouses that gobbled up small companies or merged with other giants, and which translates into hegemonic pricing. Bard and his arch leftists shrug their shoulders and look surprised when this patently uncompetitive aspect of the public option is raised, but since there’s no cogent rejoinder it, it perfectly illustrates their true motivations.”

Michael F. Cannon. “Fannie Med?”. CATO Institute. August 6, 2009: “A health insurance “exchange,” where consumers choose between private health plans with artificially high premiums and a government program with artificially low premiums, would not increase competition. Instead, it would reduce competition by driving lower-cost private health plans out of business. President Obama’s vision of a health insurance exchange is not a market, but a prelude to a government takeover of the health care sector. In the process, millions of Americans would be ousted from their existing health plans.”

Senator Charles E. Grassley, a Republican from Iowa who is influential on health issues, said on March 24, 2009: “There’s a lot of us that feel that the public option, that the government is an unfair competitor.”[1]

June 8th letter to Barack Obama from Senator Warren Hatch and other Finance Committee members: “Washington-run programs undermine market-based competition through their ability to impose price controls and shift costs to other purchasers. Forcing free market plans to compete with these government-run programs would create an unlevel playing field and inevitably doom true competition. In his March, 2009 testimony before the House Energy and Commerce Committee, Doug Elmendorf, the director of the nonpartisan Congressional Budget Office, testified that it would be “extremely difficult” to create “a system where a public plan could compete on a level playing field” against private coverage. The end result would be a federal government takeover of our healthcare system, taking decisions out of the hands of doctors and patients and placing them in the hands of a Washington bureaucracy.”