President Obama explains his view of the public option:

I have insisted that like any private insurance company, the public insurance option would have to be self-sufficient and rely on the premiums it collects. But by avoiding some of the overhead that gets eaten up at private companies by profits, excessive administrative costs and executive salaries, it could provide a good deal for consumers.

What a weak plan the President offers. He thinks he can knock a few pennies off the cost of administering insurance, when the problem is that the spiraling costs of health care are ruining the economic stability of our citizens. Marcy gives an excellent description of the costs the system inflicts on families. A family of four making $67K could easily spend 31% of its income on insurance and out-of-pocket costs. That isn’t all, though. The plan increases the amount of money going to Medicaid, which comes out of taxes, so figure a few more bucks out of the pockets of the middle class to pay for health care for the really poor.

The chart in this post shows estimates of premium increases over the next 10 years, a total of $1.39 trillion in new money for insurance companies. The President’s recommendations for insurance reform, cutting out the worst abuses, are going to cause even more price rises for insurance. Just how much money does the President think we should pay as a nation for health care? Are there any limits?

The real question is whether the public option will have statutory authority to require participation of doctors and hospitals, using Medicare participation as a hammer, and whether it can use Medicare with the public option to negotiate drug rates. A third point is the use of the Treasury as a cushion. If premiums are set too high or low one year, the Treasury covers the difference, and the adjustment is made to next year’s premiums. This is what I would call a robust public option. With these features it can drive down costs. Without them, it can’t. If it can’t lower costs, what is the justification? We might just as well pour the money into the insurance companies as set up a separate bureaucracy.

The President didn’t discuss these issues, but gives us a hint in the language about self-sufficiency. Insurance companies have reserves to make payments. HR 3200 gives the public option reserves equal to 90 days worth of claims, (Sect. 222(b)(2)) but it isn’t clear that is even enough for starters if the goal is to set up a new insurance company inside the government. Using the Treasury as the reserve solves this problem.

Then, the President wants this relatively small company to service people all over the country. Without a strong hand, it won’t be able to create provider networks. Drugs are a major cost issue for all of us. The government needs the authority to negotiate drug prices with the power of Medicare. The few pennies on the dollar big Phama is offering are meaningless. Just how is this limp public option going to help on the cost front?

The term “level playing field” is a smoke screen to allow insurance companies to preserve their control of the hundreds of billions of dollars President Obama wants to throw into the system.

Related posts:

  1. Schumer’s “Level Playing Field” Public Option Amendment Fails, 10-13
  2. Medicaid for All: An Alternative To Subsidizing Insurance Companies
  3. Max Tax Allows Insurance Companies to Suck Cash Directly from Treasury
  4. Raising Their Rates, Health Insurance Companies Put Themselves in a Box
  5. CMS: Public Option Much Cheaper Than Private Insurance, and Would Make Private Plans Cheaper, Too