The argument goes:
[ul]
[li]they are going to have taxes & other disincentives for having private insurance[/li][li]employers will opt to have employees use the public insurance[/li][li]Voila, in time the private insurance companies will be squeezed out[/li][/ul]
I don’t know whether it will not but if it does i would consider that a huge positive side effect of the health care reform.
Only if private insurers are unable to compete for customers.
If people still prefer private insurance, that market will survive.
Considering that plenty of people in the UK currently have supplemental private health insurance, even with its marxist-fascist-socialist-stalinist-poopypants single-payer system, I expect that a public option wouldn’t entirely kill private insurance. It might just shrink it small enough to drown it in a bathtub, which I would do gleefully.
Are there disincentives to using private insurance in any of the current plans? I haven’t heard of any such provision.
The penalty in the new plan is for employers not providing insurance for their employees.
Private insurers are going to have to get a lot more efficient. From the Marketplace story on a doctor’s office and the problems they have dealing with private insurers, it seems they deal with doctors on the phone (inefficient from both sides) have no electronic links, and had masses of inconsistent plans, not to mention the incompatibility with other insurers. The doctor said that for each MRI they needed approval, which took time and back office staff, as well as his time, though none had ever been rejected. The insurer said that MRIs were over used and they just had to check. Clearly a better solution would be to not require approval, and use data mining techniques to determine which doctors overused MRIs, and monitor them. Cheaper for the good guys and the insurers.
I used to work for the Bell System, so I know a bloated bureaucracy when I see it. Some insurers who can’t change will die, but in a free market that is a good thing. There will be job losses. But for the most part I think they will adopt and we’ll all be better off.
If the public option has advantages written into it by law, e.g. rates set at predetermined levels, than not only will it have an inherent advantage over private insurers who will have to negotiate, but in effect it will be forcing private insurers (and by extension, those who pay the premiums) to subsidize the public plan which will destroy them. Because whatever the HC providers can’t bill the public plan, they will have to make up by charging more to the private plans (which will in turn make these plans even less competitive than they are now).
In theory, you could do the same thing for any industry. Let’s say, bicycles. Suppose tomorrow the government sets up a “public option” bike manufacturer. It would not wipe out the private manufacturers just by virtue of existing. But suppose the government also passed laws that gave this company the right to set prices on their raw components and labor that were lower than private manufacturers could. There’s no way they could survive.
(It’s a bit worse in the case of healthcare, because of the fact that employers would like to cut their costs in any event, and many are looking for any excuse to get out.)
Of course, that only goes so far. Once all the private plans are out of business (or at least there are very few left, comparable to what exists now in UHC countries) any price dictating by the gov will either end (& costs rise, or require health care rationing) or will come out of the hides of the providers, i.e. doctors & nurses & hospitals etc.
If there is a public option that operates under the same legal framework as the private plans (but differs in being non-profit and in not spending money on marketing and the like) it would not put the private plans out of business. In fact I suspect that the private plans would put it out of business, although that’s only in a theoretical sense, as the government could prop it up forever.
This is kinda like how the uninsured currently subsidize those with insurance, by paying the HC providers more than the amount negotiated by the big insurance companies.
Is there some reason it’s OK to have private individuals in this situation, but not the insurance companies?
I’m not seeing much honest potential to generate sympathy for the industry in that argument.
As Fotheringay-Phipps says, it won’t unless the government cheats. Unfortunately, they’re practically guaranteed to cheat.
If the government can afford to subsidise its service by forcing taxpayers to contribute to the cost, instead of relying on consenting customers like everyone else, there’s no way that a private business can compete.
As Greg Mankiw said:
The notion that a public option would compete on a level playing field strikes me as naive. Existing public options don’t do this. The USPS is currently facing massive losses that are picked up by the taxpayer, unlike Fedex or UPS. 11% of K-12 students attend private schools rather than the public option even though the public option is free while private schools have an average tuition of over $8K.
Given the inefficiencies that predominate in government and competition already found in the health insurance sector (I read profit only accounts for 3% of health insurance dollars) I see no obvious way the public option could offer a similar service at comparable costs. That is the real guarantee that a public option won’t compete on a level playing field. If it did there is the chance that hardly anyone would use it, which would be deeply embarrassing to the politicians, that have made this a centerpiece of reform. Will anyone be willing to admit that it was a failure and then scrap it? They will have to tilt the field to ensure its success.
My understanding is that this is the proposal for the public option. The CBO projections assumed the public plan would pay at rates comparable to that of private plans, and I presume they got that from the current house legislation (second to last paragraph here (pdf). Neither will the public plan be subsidized beyond those subsidies given to the private insurers. As a result, I don’t think it will force out private insurers unless those companies are infact much less efficent then the gov’t plan turns out being.
Will private insurance schemes be able to cherry-pick their customers under proposed US legislation? If so, they’d have an inherent competitive advantage over a public option that must accept all comers.
BTW here in Germany like in every other country with UHC that I have heard of, private insurance companies do fine. (Their main competitive advantage is that the public option’s premium is a percentage of your wage, so for people with a high income it’s cheaper to go private with a fixed-sum premium. Also their reimbursement to doctors is higher, and in hospital they often pay for a better ‘hotel’ component of the stay).
The difference there is that the uninsured only buy healthcare because they believe the benefits are greater than the costs. Even if they are subsidising other users, they still better off after the transaction. So even for the uninsured, it impossible for the system to be worse than breaking even, because if it was nobody would participate. That is why requiring consent is so important.
Again, it doesn’t appear that this will be the case, or at least, any subsidy given to the public plan will also be available to the private one.
I used to work in a small doctors office, and have had experiences similar to Voyager, the amount of overhead imposed on even a small family practice by the private insurance companies is pretty nuts. I think the public plan will force them to improve this situation or go out of business.
The gov’t floats the USPS loans when it is in the red, but over the long term, the Postal Service is self-supporting. They eventually raise rates and pay back the loans, and I think they’re actually now being forced to put any profits in a fund to cover future over-runs to cut their reliance on federal loans. The public option will probably be similar, it will pay for itself through collecting premiums, not through federal subsidies. And indeed, the USPS has competitors that manage to survive, presumably for the same reason.
That’s not what I’ve seen in articles on the subject, which say the idea is to have the public option pay some rate linked to the Medicare rates. e.g. this WP article
The insured behave otherwise?
Regardless, the uninsured would be better off after their transaction if they did not have to subsidize other users who happen to have large companies negotiating rates for them.
This is a clincher for me. Despite the fear mongering rumor about eliminating private insurance the fact is modern democracies with UHC also have private insurers that make a profit. So, where any bit of evidence UHC would eliminate the private option.
I’m just a working stiff and I never had a lot of options. I got whatever insurance my employer offered end of story.
I should also add that what I wrote earlier was assuming that the government wasn’t deliberately pricing the coverage at a loss. So the danger is in writing legal advantages for its own plan. If the government decides to price the coverage at a loss, than it’s even worse for the private plans.
I wonder if the people claiming that in UHC countries private insurers do “just fine” can put some numbers on that. My understanding is that these are small & expensive plans available for well-to-do people, and the middle class has to take what the government has to offer. Is this incorrect? How many people are on private plans in these countries and what demographic buys it?
[I’m sure Bill Gates will have fine health care regardless of the outcome of health care reform. The question is what options will be available for middle class people.]
The title of this thread is “Will a public option kill private insurance”. Whether you have sympathy for the industry is beyond the scope of this discussion.
There is a rationale there going right back to Ancient Rome for the State to provide the essential service of health care insurance. The Roman experience wasn’t that, it was provision of corn at a low price. Anything you want additional to medical care, you pay for privately, like a private room with your own TV and (possibly) a broader choice of meals and so on. Covering the basics ties the private providers from escalating costs out of all proportion too: there will always be the cheap option. You get your basic corn. If you want better you buy better, but even better can’t afford to jack the price up too far or it will lose custom. What you are doing in effect is creating a competitive market where one does not naturally exist.