Economists Debate 'Public Option' On Health Care
Princeton economist and professor Uwe Reinhardt has spent his life giving out grades. So much so that he gives them out by instinct, even to things that don't usually get grades. And last week when President Obama gave his big speech to Congress on health care overhaul, Reinhardt took out a pencil and paper as he listened. Overall, he thought, the speech was impressive: A-. But then Obama brought up that idea of a "public option" — a government-run insurance plan to compete with other insurers.
"It could provide a good deal for consumers, and would also keep pressure on private insurers to keep their policies affordable and treat their customers better," Obama said.
Reinhardt gives Obama a C+ for that part of the speech.
"With all due respect for this brilliant president, I do not share, as an economist, his theory that a public plan would be a splendid instrument of cost control," Reinhardt says.
The idea that it would keep costs down by adding a competitor made no sense to him.
The Public Plan As Price Control
The pitch for a public plan is that somehow it will be able to put the brakes on health care costs. Right now health care spending is rising so fast that Medicare and Medicaid are on pace to cripple the federal budget.
Jacob Hacker, a political scientist at Yale — known as the "father of the public option" idea — says it could cut costs.
Here's how a public option would work, Hacker says: People who don't get insurance through their employer could shop for a plan on what's called an "insurance exchange." Basically those people would get a menu that would list some private health plan options and one offered by the government, the public option.
"It's really important to understand the public plan is not some plan that swoops in and sucks people up like some spaceship. It's only available to people in the exchange. And you always have a choice of private insurance plans beside it," he says.
Hacker says that the public option would drive down costs in a couple ways. It would have lower administrative expenses than private insurers. And it would have the power to bargain for lower prices.
"This public plan will call out the private plans and keep them 'honest,' as President Obama has put it," says Hacker.
Can We Really Keep Costs Down?
Hacker argues that Medicare — run by the government — has done better than private insurers at bargaining for lower prices.
Reinhardt says that may be so, but it misses the point. The big source of waste in the system is not high prices. It's volume; entirely unnecessary treatments, tests, and procedures.
Reinhardt says eliminating those is very difficult for any insurance company — whether it's for-profit, not-for-profit, or something run by the government, like Medicare.
"They can control prices, but they cannot control volume," he says.
Hacker agrees overtreatment is a big problem. There are ideas for how to reduce it, by paying doctors and hospitals differently. If the government had a public plan, it could try those out.
"But the truth is you're getting to the most difficult question in health care reform. The public plan is not a magic solution to this problem. But there are no magic solutions," Hacker says.
Reinhardt, though he gave Obama's presentation of the public option a C+, actually supports the idea. He thinks it would be simple, and allow workers to move around without losing their insurance. Reinhardt just doesn't buy the claim that it will fix the bigger problem of rising costs.
9(MDAyNzUwMDI2MDEyNTA3MTU5NzcyNTQyNA004))
MELISSA BLOCK, host:
The words public and option are pretty innocuous, until you put them together. And these days, they become explosive. Public option refers, of course, to President Obama's proposal to create a government-run health insurance plan that would compete with private insurers. Congress is deeply divided on the issue.
And NPR's David Kestenbaum reports, even people who study economics aren't sure it will work.
DAVID KESTENBAUM: Princeton economist and professor Uwe Reinhardt has spent his life giving out grades. So much so that he gives them out by instinct, to things that don't usually get grades, like last week when President Obama gave his big speech to Congress on health care reform, Reinhardt took out a pencil and paper and listened. Overall, he thought, impressive, A-. But then, Obama brought up that idea of a public option.
President BARACK OBAMA: It could provide a good deal for consumers that would also keep pressure on private insurers to keep their policies affordable and treat their customers better.
KESTENBAUM: This section got applause in Congress.
(Soundbite of applause)
KESTENBAUM: Reinhardt wrote down C+.
Professor UWE REINHARDT (Economics, Princeton University): With all due respect for this brilliant president, I do not share, as an economist, his theory that a public plan would be a splendid instrument of cost control.
KESTENBAUM: The idea that it would keep costs down by adding a competitor made no sense to him. We'll get to that in a second. The pitch for a public plan is that somehow it will be able to put the brakes on health care costs. So to get a spirited economic defense of the public option idea, we have Jacob Hacker, a political scientist at Yale, also known as the father of the public option idea.
Professor JACOB HACKER (Political Science, Yale University): It's what I've been called. I like to think of it as my brainchild. But if that's the case, then I've been suffering a lot of brainchild abuse lately.
KESTENBAUM: Here's how a public option would work, he says. People who don't get insurance through their employer could shop for a plan on what's called an insurance exchange. It would list some private health plan options and one offered by the government, the public option.
Prof. HACKER: So it's really important that people understand the public plan is not some plan that swoops in and kind of sucks people up like a big spaceship. And, you know, the public plan is only available to people in the exchange. And you always have a choice of private insurance plans alongside it.
KESTENBAUM: Hacker says the public option would drive down costs in a couple of ways. It would have lower administrative expenses than private insurers. And it would have the power to bargain for lower prices.
Prof. HACKER: This public plan will kind of call out the private plans, you know, keep them honest, as President Obama has put it.
KESTENBAUM: This is the point in the debate where you start asking each side for evidence. Hacker says, sure, Medicare. Reinhardt also says sure, and also points to Medicare.
So, Hacker first. He argues that Medicare, run by the government, has done better than private insurers at bargaining for lower prices: point for the public option idea. Uwe Reinhardt at Princeton says, okay, but you are missing the point. The big source of waste in the system, it's not high prices for this treatment or that one. It's volume, entirely unnecessary treatments, tests or procedures. Reinhardt says eliminating those is very difficult for any insurance company, whether it's for-profit, not-for-profit, or something run by the government, like Medicare.
Prof. REINHARDT: I don't think Medicare really has been that. They can control prices and they have, but they cannot control volume.
KESTENBAUM: Jacob Hacker agrees overtreatment is a big problem. There are ideas for how to reduce it, he says, by paying doctors and hospitals differently. If the government had a public plan, it could lead the effort to try those out.
Prof. HACKER: But the truth is, I mean, you know, you're getting to the most difficult question in health care reform. And the public plan is not a magic solution to this problem. But there are no magic solutions.
KESTENBAUM: Uwe Reinhardt, though he gave Obama's presentation of the public option a C+, actually supports the idea. He thinks it would be simple, and allow workers to move around without losing their insurance. Reinhardt just doesn't buy the claim that it will fix the bigger problem of rising costs.
David Kestenbaum, NPR News. Transcript provided by NPR, Copyright National Public Radio.
