Response to Reich's Defense of the Public Option

I normally don't go for the paragraph-by-paragraph-response style of discussion, but Robert Reich's post defending the public option covers a lot of ground, and going paragraph by paragraph is the easiest way to keep it all straight. I'm responding to nearly the whole post, so to avoid infringing Reich's copyright I've included only a snippet from most of the paragraphs. Be sure to compare the original to be sure that I've represented Reich's argument faithfully.

Without a public option, the other parties that comprise America's non-system of health care -- private insurers, doctors, hospitals, drug companies, and medical suppliers -- have little or no incentive to supply high-quality care at a lower cost than they do now.

Try a replacement along these lines:

Without a public option, the other parties that comprise America's non-system of food distribution -- grocery stores, restaurants, farmers, and meat packers -- have little or no incentive to supply high-quality food at a lower cost than they do now.

Presumably nobody would believe this ridiculous statement about food production, so why do we believe it about health care? What is so special about health care that it alone of all the things we buy every day requires massive government intervention to ensure that people can get a quality product at a reasonable price?

The American Medical Association is dead-set against it, Big Pharma rejects it out of hand, and the biggest insurance companies won't consider it. . . . A public option would squeeze their profits . . .

My understanding is that both the AMA and Big Pharma support the health care bill, but since the public option has been in and out of the bill, perhaps they support the version without it. Regardless, let's stipulate that they do oppose the public option and focus on the AMA's opposition. You would think that if anyone's opinion should carry some weight in this issue, it's an association made up of doctors. Reich discounts them because they have a financial stake in the outcome. However, one of the pillars of health care reform has long been that we can reduce remuneration to doctors without affecting quality or supply because doctors are less motivated by money than, say investment bankers. They follow, we are told, a higher calling. By that logic, we should not discount their opinion of the public option just because they stand to lose money. Reich evidently rejects this logic, which means that presumably we must ask what effect this substantial reduction (by Reich's assumption) in doctors' earnings will have on the supply of doctors. One assumes that doctor appointments will become hard to come by.

Critics say the public option is really a Trojan horse for a government takeover of all of health insurance. But nothing could be further from the truth. It's an option. . . .

Sounds reasonable, but if it were that simple, then why have the many nonprofit health plans available in the US not solved the problem already? The Alliance for Advancing Nonprofit Health Care reports that 61% of health plans with greater than 100,000 enrollees are nonprofit. Why do we expect government will do any better than they have? Unless. . .

Private insurers say a public option would have an unfair advantage . . . it will have large economies of scale that will enable it to negotiate more favorable terms with pharmaceutical companies and other providers. . . .

First, health insurance plans operate in a byzantine regulatory environment from which the public option would, presumably be exempt (since many of those regulations are at the state level). For instance, many plans cannot achieve these economies of scale anticipated in the public option because they are forbidden to operate across state lines. To the extent that the public option achieves its advantages from this lack of regulation, it is unfair, and it does represent a government takeover.

Furthermore, I question what it means to "negotiate" with a plan that has the backing of the government. If the government can enact compulsory licensing for pharmaceutical patents, as the Canadian government has, then can drug manufacturers really negotiate with them in any meaningful sense? If you think that compulsory licensing in the US is far-fetched, consider that a bill proposing compulsory licensing was introduced into the House of Representatives in 1981. Similar arguments apply to patient acceptance and other similar issues. If the government does not intend to use its power to compel, then how is the public option superior to other nonprofit health plans? And if it does, then can we really call its demands "negotiation"?

But, say the critics, the public plan starts off with an unfair advantage because it's likely to have lower administrative costs. That may be true -- Medicare's administrative costs per enrollee are a small fraction of typical private insurance costs . . .

Medicare's administrative costs are a bit of a shell game. It shifts many of them onto the providers, who in turn shift them onto private payers. (Steve Lipstein of BJC healthcare discusses Medicare's cost shifting practices in an interview with Russ Roberts.) If the public option is supposed to engage in these practices too, then yes, I think that is unfair competition. If not, then how are they better than private nonprofit plans?

Critics complain that a public plan has an inherent advantage over private plans because the public won't have to show profits. . . .

I've not heard critics making these claims, but if they are, then I agree with Reich here.

Critics charge that the public plan will be subsidized . . . Legislation should also make crystal clear that the public plan, for its part, may not dip into general revenues to cover its costs.

Note the weasel word: should. Reich doesn't claim that the legislation will be written that way, only that it should. Even if the plan is written that way initially, will such a restriction hold up if the public option fails to capture its target market share? I doubt it; certainly the experience of other government-sponsored enterprises suggests otherwise.

Finally, critics say that because of its breadth and national reach, the public plan will be able to collect and analyze patient information on a large scale to discover the best ways to improve care. . . .

We've covered this earlier. The public option's breadth and national reach are an artifact of its being exempt from the patchwork of state regulations that prohibit private plans from operating on a national scale.

As a practical matter, the choice people make between private plans and a public one is likely to function as a check on both. . . .

This is true only if the government allows the public option to compete without the state pressing a thumb on the scales. I don't see any reason to suppose that such fair competition will happen, and the history of government-sponsored enterprises is not encouraging.

And that (for anyone that has gotten this far) is why I oppose the public option.

Who would have thought

A recent post at Cosmic Variance about recent developments in gravitational lensing got me thinking about the work that I used to do in that area, over 10 years ago now. I looked up my old ApJ paper, and I was pleasantly (and I might add profoundly) surprised to discover that it's been cited almost 30 times since it came out, including twice so far this year. Of course, I haven't read all those papers, so it's possible that they are just citing us as an example of how not to do cosmology, but it's still pretty good for a one-hit wonder like me.

Four Reasons to Oppose the Energy Bill

The energy bill that recently passed the US Senate and House of Representatives is a legislative debacle. Here are four reasons why:

1. The bill will not reduce CO2 emissions. The emissions caps imposed by the bill are, at least for the next decade, nowhere near stringent enough to produce significant emissions reductions. Proponents of the bill claim that the real emission cuts will kick in "later on," but in the meantime, the deadweight losses of the new regulatory scheme are with us from day 1.
   
   
2. The bill strips cap and trade of its price-signaling ability. By giving away 85% of the emissions permits we ensure that the price of energy will remain uncoupled to CO2 emission. This will undercut the primary feature of cap and trade, viz., its use of market mechanisms to create incentives to reduce emissions.
   
   
3. The bill favors incumbent firms and technologies. Most of the emissions permits are being given away, but only to incumbents in industries such as energy and transportation. Upstart firms offering low-emission technologies will still have to buy emissions credits for whatever CO2 they do emit, making them less competitive with existing technologies, which undercuts the bill's stated objective of reducing our reliance on fossil fuels.
   
   
4. The bill is filled with pork The House leadership was unable to muster sufficient support for the bill in its original form, so they were forced to use pork barrel projects to buy the support they needed. These wasteful projects contribute nothing to combating climate change. They will be enormously expensive in the short term and very difficult to get rid of in the long term.
   

Proponents of the energy bill try to explain away its flaws by saying that it is just a first step, that we need to establish our credibility as a nation at fighting climate change, and that the bill will provide a framework for change. In fact, the bill will undermine our national efforts to reduce greenhouse gas emissions and will likely foreclose the possibility of any further policy reforms five or ten years to come. Furthermore, the bill creates huge deadweight losses in the form of compliance costs and a non-productive industry dedicated to brokering emission permit trading. The bill in its current form is so flawed that it would be preferable to scrap it entirely and try again in the next legislative session.