The Public Option Opt-Out Is No Panacea

WASHINGTON-Pity poor Harry Reid. The Senate Majority Leader has been grappling with the challenge of combining the two Senate health care plans into one, legislation that must also be palatable to Democrats in the House of Representatives.

Mr. Reid's compromise is a bill with a public plan that allows individual states to opt out. That puts him squarely in the liberal camp, because few states end up opting out of federal benefits, however hard their initial resolve. The question is whether he can carry the votes of all senators of his own party and muster the 60 ayes needed to block a filibuster.

There are just 60 senators in the Democratic caucus, and Joe Lieberman (Connecticut), Ben Nelson (Nebraska), Blanche Lincoln (Arkansas), Evan Bayh (Indiana) and Mary Landrieu (Louisiana) are said to be especially wary of any form of public option. Mr. Lieberman has even threatened a filibuster.

Mr. Reid's decision tilts the Senate toward the bill passed by the Committee on Health, Education, Labor and Pensions, which contains a public option and is similar to the bill headed for passage in the House of Representatives. The Senate Finance Committee bill focuses on regulation of insurance companies and omits a public option.

Why does Mr. Reid choose the public option, even with an opt-out? It was the object of widespread vilification in the noisy August town hall meetings between members of Congress and constituents. It is a statist approach to health care, costing almost a trillion dollars over the next decade, which some Democrats may find they cannot support. Mr. Reid is cooperating with President Obama, who is committed to the public plan and cannot be seen to abandon it unless and until it fails to clear the filibuster hurdle.

In remarks on Monday, Mr. Reid said, "I believe that a public option can achieve the goal of bringing meaningful reform to our broken system. It will protect consumers, keep insurers honest and ensure competition."

That's the Reid-Obama argument. What it omits is that the public plan would result in the disappearance of competition, because private companies cannot compete against a government plan with its explicit government guarantee and its insulation from failure. When Medicare's costs exceed its revenues, as is happening at present, the program collects an additional $20 billion annually from the public purse. Private companies with similar cost overruns would go out of business.

The House bill and a Senate bill with a public option would drive the public into the arms of the government plan. The bills include penalties on firms that do not offer health insurance to employees, a requirement that everyone-man, woman, and child-have comprehensive insurance, and requirements on whom insurers must cover, what benefits must be provided, and the extent of variation in premiums.

This would solidify government control of health care, force many private insurers out of business, and lead to a single-payer health system, as in Britain and Canada.
Americans would have a financial incentive to sign up for the new public health-care plan, or for Medicaid, the federal-state plan for low-income people. The existence of a public option would motivate many employers to drop insurance and pay the annual penalty-in some versions of the legislation, only $400 or $750 per worker, in others, 8% of payroll-effectively pushing employees to the new public plan.

All bills would create health insurance exchanges. There the public plan would compete against "qualified health benefit plans," the only ones allowed to advertise their health insurance plans to individuals and firms. Qualified plans would be those that offer specified generous packages of benefits, meet guidelines on who could sign up, and agree to limits on the range of premiums.

In all, premiums would necessarily have to be very high. Insurers would be required to accept all applicants, no matter how sick. With the exception of variations for age and, in some versions, geography and tobacco use, everyone, no matter how sick or healthy, would be charged the same premiums. That would tend to lift premiums charged for young, healthy adults.

This pricing mechanism would quickly force private plans out of business-and leave consumers with the public plan.
In order to prevent insurance companies from offering plans unlisted on the health exchanges, lower-income Americans who receive federal financial help in paying for insurance would be required to buy only plans listed on an exchange. They could not select minimal plans with low premiums and high deductibles offered on the open market, even though such insurance makes sense to many people and encourages shopping around for less expensive services.

With restrictions on insurance companies driving prices of private insurance higher, it is unrealistic to believe that states would opt out of this sweeping, expensive proposed public insurance scheme. People would ask why residents of other states had access to inexpensive federal plans, yet they were prohibited from purchasing them. It's as though Medicare was offered in some states but not others.

Any health care bill that includes a public plan, with or without a state opt-out, will inevitably put private insurance out of business for the vast majority of Americans. Then, it's a short step toward a single-payer system.