Public Option a False Start Without Cost Control

By Fred Hiatt The Washington Post

The “public option” is dangerous not for what it might do but for what it allows the politicians not to do. From the start, the Obama administration has said that health-care reform has to make health care both more accessible and less costly . If Congress does the first without the second — guarantees a new entitlement without controlling costs — it will bankrupt us, because health-care costs are rising faster than the overall economy is growing. So far, though, that seems to be where Congress is headed, for two reasons: First, no one knows for sure how to control costs; and, second, the reforms that are likeliest to work are politically unpalatable.

What are those reforms? The most logical big thing Congress could do would be to tax, as income, the value of the health-care benefits Americans receive from their employers. By not doing so, the government forgoes $250 billion in revenue every year — effectively, its second-biggest health expense after Medicare. It discriminates against people who have to buy insurance on their own. And it encourages overuse of health care, which drives up costs. If employees had to pay taxes on their plan, they might opt for one that cost, say, $12,000 per year rather than $16,000, and push to receive the difference in wages. The government could use the revenue to subsidize health insurance for those who need help. But many unions oppose this change, because they fear it would jeopardize their members’ hard-won benefits, and so Democrats won’t go for it. Sen. John McCain, R-Ariz., embraced the idea as presidential nominee and was irresponsibly attacked for it by his opponent. Now Republicans oppose it so that, were President Obama to embrace it even in part, they could beat him up for retreating from his foolish campaign promise to reform health care without raising taxes on anyone but the rich.

The second big thing Congress could do would be to cede its power to regulate the minutiae of Medicare coverage. Cost control will come from a series of changes, adjusted and readjusted over time, in how physicians and other providers are reimbursed and what they are reimbursed for. Such decisions should be made based on evidence of what works and what doesn’t. But all such changes make one interest group or another — urologists, MRI operators, oxygen tank manufacturers — unhappy. They go to Congress, and Congress blocks the changes. Now Congress is being asked to cede both power and a reliable fund-raising source. And — surprise! — it doesn’t much like that idea.

Which brings us back to the idea of a government-run insurance plan. It allows Democrats to make their base happy, to bash the unlovable insurance companies — and to claim to be taking care of cost control, too, by ensuring competition in the marketplace. The claim merits skepticism. If, as advocates sometimes argue, a public plan operates without favoritism, it will be simply one more entrant in the marketplace. Like other companies, it will have marketing and administrative costs. In some markets served by few private plans, it could offer a useful alternative. But it won’t radically reduce costs. If, as advocates argue at other times, the point is to insure sick people whom private companies, despite all regulatory efforts, find ways to shun, the public plan could offer a valuable safety net. But that wouldn’t save money.

And if, as seems likeliest — and as House legislation mandates — the plan uses government power to demand lower prices from hospitals and drug companies, those providers may lower quality or seek to make up the difference from private payers. Private companies would have to raise their rates, so more people would choose the public plan, so private rates would rise further — and we could end up with only the public option and no competition at all. Single-payer national health insurance may be the best outcome, but we should get there after an honest debate, not through the back door.

So all the attention on whether Obama will get a public plan, as he says he hopes, misses the bigger point. The question is whether he will allow Congress to use the public option as an excuse to dodge the harder reforms, or whether he will insist on true cost control.

Hiatt is The Washington Post’s editorial page editor.