Thursday, September 10, 2009

The Intellectual Dishonesty of the Public Option

President Obama once again pitched for the public option last night and the mainstream media once again cheered. On the face of it, it is easy to be carried away. You can keep your insurance, or you can take the government plan. Sounds innocuous, right?

Wrong! The reality is that a public option is a lose-lose, unless you want a nationalized healthcare system.

For starters, even if the government plan is not subsidized by the taxpayer, it has several key advantages. One is that its cost of capital is much lower than any of its competitors, its debt being backed by the full faith of the US Government. The other is that since it does not have to make a profit, competition will kill returns in the private sector, driving us towards national healthcare.

Will we be able to keep the health plan we like? Absolutely not! Lets focus simply on the issue of those currently being covered by an employer-based health plan. If you are an employer, you can either buy health insurance from a private insurer, or you can pay a tax (if I remember the parts of HR3200 I read, it's in the vicinity of 8% of gross income)

If the government plan is cheaper, most employers will simply abandon providing health coverage and instead pay the tax. But we are not in the clear even if the government plan is more expensive. After all, this means that the clientèle for the government plan will dispropriately be the unemployed, individuals with pre-existing conditions, and other high-risk groups. That would make a government plan unsustainable (after all, the point of insurance is to spread risk, not aggregate the risky) Any bets that politicians would stay true to their word and allow a government plan to fail?

The mainstream media has bought this along traditional lines, and failed to do much analysis. It is easily to be carried away by the brilliance of Obama's oratorical skills, and by the extreme craziness from some on the right. But let's not get carried away - if the public option passes, we're coasting to a socialized medical system!

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