When a nation is mature, a solution to a complex issue of national importance that has escaped resolution for decades inevitably involves creating winners and losers.
Unfortunately, that is not the case for the issue of whether there should be a “public option” in legislation providing health insurance for the greater part of the U.S. population.
Specifically, no long-term, complex academic study is needed to determine that such a proposal, an intractable demand of liberal-leaning supporters of President Obama, creates only losers.
Moreover, the decision of President Obama to support those who insist on a public option raises the odds that health insurance reform–despite momentum from virtually all interested parties–will be delayed or, perish the thought, again fail to be enacted.
An estimated 1,000 insurance agents, representing the entire spectrum of products sold by the industry, came to town last week to explain to their congressmen why a public option is a bad idea.
And even the objective observer would have to agree with them.
The argument for a public option is that it would put pressure on health insurers to cut costs, presumably, it is implied, by reducing their “huge” profits.
For example, the National Retail Federation, which opposes an employer mandate, said in a recent letter that “mandates would drive up costs for retailers while doing nothing to address waste, inefficiencies and lack of competition.”
However, while this is an easy argument to sell to the average small businessman who would rather put the cost of employee healthcare in his pocket than in the hands of an insurer, even the simplest scrutiny would reduce this argument to dust.
For example, as a rule of thumb, administrative costs, which the liberals and small businessmen see as the easiest to cut, constitute only 16% to 17% of healthcare costs.
To start, health insurance premiums are regulated by the states, which mandate that the rate bear a “reasonable relation” to benefits and expenses.
Moreover, a public plan would most likely not include the cost of those who administer the program, and the office and administrative expenses incurred by those who run the business.
Additionally, a public plan would also likely not include the cost of capital needed to set up such a plan, to provide insurance against liability and other claims, nor pay for establishing relationships with both providers and customers.
And, the euphemism “waste, inefficiencies and lack of competition” cited by the retailers also is unlikely to include the losses caused by those who don’t pay their bills, marketing costs and commissions paid to intermediaries to book customers.
Moreover, the options available to consumers are myriad, and the terms used to describe them are unlikely to be familiar to lay people.
The so-called “Navigator” websites some congressmen envision as helping substantively reduce costs would substitute volunteers or non-profit groups for agents.
Not only would the likelihood that these people have experience in the field be reduced, but they are most likely to be part-time. That would mean that any cost reductions to subscribers would be decreased because the people providing them with the information are unlikely to have much incentive to provide accurate and prompt information.
For example, during the period earlier this year when Minnesota had only one senator, that senator, Amy Klobuchar, complained about the excessive burden placed on her staff because they were handling all the constituent inquiries routinely handled by two staffs.
Most of those complaints are about the healthcare services provided by Medicare, and to a lesser extent, Medicaid.
The commissions paid to some of the small businesses who are presumably the members of NRF are unlikely to come under the “waste, inefficiencies and lack of competition” abuses they ascribe to insurers.
And, the administrative costs inherent in running a health insurance company also include 2% to 4% in premium taxes paid to states.
What is this used for? This is used to establish ethical and professional standards for caregivers, ensure that adequate providers are available, and for a myriad of other reasons.
For example, some states use premium taxes to fund emergency medical and firefighter and communication services for their communities.
In other words, the so-called savings from eliminating the “waste, inefficiencies and lack of competition” in health insurance through a public plan are likely to be recouped through higher taxes and/or poorer service.