Cutting the Gordian Knot: Why a “Public Option” Won’t Work

A friend of mine is adamant in his belief that the American health care system simply cannot be fixed to operate with some semblance of humanity and rationality. Bill has become convinced that “it will never, ever work.” What does it matter if other health care systems in other countries are less crazy, cruel, convoluted, or costly? He is convinced we are FUBAR and cannot get to anything better from here.

This seems to me a nihilistic, despairing, and illogical view. Yet, Bill is right that strong, interlocking structures hold the existing order in place.

So many promising efforts in the past to reform things have been distorted, stymied, and twisted, and have not improved matters. The HMO movement comes to mind. Originally non-profit and medically-focused, it changed into something quite different, angered patients and doctors, and was a striking failure.

If the healthcare system is to be radically improved, it won’t be easy, and figuring out how to weaken structural forces that buttress the current system is a crucial part.

With this in mind, let’s consider the currently popular goal of “Medicare for All.” The most popular “compromise” path – now espoused by every candidate in the Democratic field but Sanders – involves adding a “public option” to current ACA plans alongside private insurance. Pete Buttigieg and now Elizabeth Warren have rhapsodized about how this would provide a “glide path” to real single-payer reform, because people would prefer the “public option” to private insurance plans.

But, giving people the choice between public and private health plans simply won’t work. Real single-payer eliminates an unneeded, expensive middleman – the insurance companies. A “choice” leaves the insurance companies – and the additional layer of complication and expense they add – firmly in place.  If true single-payer is implemented, administrative overhead would be reduced, because hospitals and doctors wouldn’t have to deal with dozens of differing insurance plans and their varied requirements. One set of billing procedures, forms, one drug formulary and rules, etc. would majorly lessen overhead. Adding a new “public plan” would only increase complexity, not reduce it.

A “public plan” that exists alongside private plans also will not have the leverage to reduce medical prices, including pharmaceutical prices, that the government would have in a true single-payer system. Without the cost savings from overhead reduction and better pricing, the public plan will not realize any of the potential gains that could enable substantial systemic improvement.

Crucially, if some are on private plans and some on public, adverse selection is certain to occur. Insurance companies will game the system as much as possible to retain the best risks and offload the medically needy onto the public plan. Even before such games get into play, if people who work for large employers keep their current plans, those people have a more favorable risk profile than the population at large. Warren’s means-tested initial transition plan extends coverage to those below 200 percent of the poverty level – are these going to be good risks? So, the public plan will be saddled with a population that will inevitably be costly.

For all these reasons, after implementation, the public plan won’t be in a good position to present a favorable profile compared to the cream-skimming private plans, which will offer sets of benefits designed to attract younger and healthier people. This will raise the cost of the public option and together with the lack of administrative savings, will be a financial disaster.

The government will pick up more of the tab for the sick; people will NOT prefer the “public option” to private insurance; and the leaders of the insurance companies, pharmaceutical companies, and hospitals will continue making our healthcare "system" complicated, expensive, and corrupt. The suffering it imposes will continue. And my friend Bill will be confirmed – again - in his belief that American healthcare will “never, ever work.”

The truth, of course, is that American healthcare does work, superbly, for its overarching purpose – to make money for capitalists. At that, it is indeed the very best in the world. But if we want it to work for other purposes, we have to cut the Gordian knot, rather than try to untie it gradually. The rapid, drastic, and successful implementation of the National Health Service in Britain after World War II affords an example.

A tweet from @SableViews makes the point in a different way that incrementalism can be a horrible strategy:

You can't leap a chasm in two bounds. So what does [Warren] suggest? Break the leap into two bounds so that M4A falls down the damn chasm never to make it to the other side.

"Getting to the other side" is possible – but it can’t be done in the way proposed.