The Public Option Two-Step

The Public Option Two-Step. WSJ Editorial
Why Obama won't acknowledge the 'Trojan Horse' in the room.
WSJ, Jul 09, 2009

Americans unschooled in liberal health-care politics may have trouble deciphering the White House's conflicting proclamations this week about a new government insurance program for the middle class. Allow us to translate: President Obama loves this so-called public option, but he needs to sell it in a shroud of euphemism and the appearance of "compromise."

On Monday, chief of staff Rahm Emanuel told the Journal's Laura Meckler that the Administration would accept a health bill without a public option, as long as there is "a mechanism to keep the private insurers honest . . . The goal is non-negotiable; the path is." Progressives went bonkers, so on Tuesday Mr. Obama took a break from his Moscow trip to come out strongly in favor (again) of the new trillion-dollar entitlement. Meanwhile, New York's Chuck Schumer has been loudly suggesting that compromise is unnecessary given 60 Senate Democrats -- even as the likes of Ben Nelson, Evan Bayh, Joe Lieberman and Mary Landrieu back away.

The reason left-flank Democrats are so adamant about a public option is because they know it is an opening wedge for the government to dominate U.S. health care. That's also why the health-care industry, business groups, some moderates and most Republicans are opposed. Team Obama likes the policies of the first group but wants the political support of the second. And they're trying to solve this Newtonian problem -- irresistible forces, immovable objects -- by becoming less and less candid about the changes they really favor.

Mr. Emanuel echoes his boss and says a government health plan is needed to keep the private sector "honest," but then why don't we also need a state-run oil company, or nationalized grocery store chain? (Or auto maker? Never mind.) The real goal is to create a program backstopped by taxpayers that can exert political leverage over the market.

In its strongest version, the federal plan would receive direct cash subsidies, allowing it to undercut private insurers on consumer prices. This would quickly lead to "crowd out," the tendency of supposedly "free" public programs to displace private insurance. As a general rule, Congress has to spend $2 of taxpayer money to provide $1 in new benefits. More precise academic studies of expansions in Medicaid and the children's insurance program put the crowd-out effect somewhere between 25% and 60%.

Because this is so expensive, the public version Mr. Schumer favors would supposedly receive no special advantages. But this is meaningless when Democrats are planning to mandate the benefits that private insurers must provide, the patients they must accept, and how much they can charge. Oh, and a government plan would still have an implicit taxpayer guarantee a la Fannie Mae, giving it an inherent cost-of-capital advantage.

A few swing votes such as Maine's Olympia Snowe might accept a "trigger," in which a government-run plan would only come on line if certain targets aren't met, such as reducing costs. But that only delays the day of reckoning. Another pseudocompromise is North Dakota Democrat Kent Conrad's idea to give the states seed money to set up health insurance co-ops. These plans would still be run under a federal charter and managed by a federal board, so they merely split the public option into 50 pieces.

The other goal of a new public plan is to force doctors and hospitals to accept below-cost fees. This is how Medicare tries to control costs today, but it's like squeezing a balloon: Lower reimbursements mean that providers -- especially hospitals -- must recoup their costs elsewhere, either by shifting costs onto private payers or with more billable tests and procedures. The only way costs can conceivably be managed via price controls is if government is running the whole show, which naturally leads to severe restrictions on care while medical innovation withers.

A rhetorical gong Mr. Obama has been banging a lot lately is the idea that the people pointing all this out are liars. "When you hear the naysayers claim that I'm trying to bring about government-run health care," he said in one speech, "know this: They're not telling the truth." He adds that opposition to a public option isn't "based on any evidence" and that it is "illegitimate" to argue that his program is "is somehow a Trojan horse for a single-payer system."

So much for changing the political tone. Perhaps the President should check in with his more honest liberal allies. Jacob Hacker, now a professor of political science at Berkeley, came up with the intellectual architecture for the public option when he was a graduate student in the 1990s. "Someone once said to me, 'This is a Trojan horse for single payer,' and I said, 'Well, it's not a Trojan horse, right? It's just right there,'" Mr. Hacker explained in a speech last year. "I'm telling you, we're going to get there, over time, slowly."

The real question the political class is debating now is how slowly, or quickly, it takes to get there. And how they're best able to disguise this goal -- ideally as a "compromise."