Is the Public Option a Backdoor to Single-Payer?

Greg Mankiw offers his take on the public option in tomorrow's New York Times:

An important question about any public provider of health insurance is whether it would have access to taxpayer funds. If not, the public plan would have to stand on its own financially, as private plans do, covering all expenses with premiums from those who signed up for it.

But if such a plan were desirable and feasible, nothing would stop someone from setting it up right now. In essence, a public plan without taxpayer support would be yet another nonprofit company offering health insurance. The fundamental viability of the enterprise does not depend on whether the employees are called “nonprofit administrators” or “civil servants.”

In practice, however, if a public option is available, it will probably enjoy taxpayer subsidies. Indeed, even if the initial legislation rejected them, such subsidies would be hard to avoid in the long run. Fannie Mae and Freddie Mac, the mortgage giants created by federal law, were once private companies. Yet many investors believed — correctly, as it turned out — that the federal government would stand behind Fannie’s and Freddie’s debts, and this perception gave these companies access to cheap credit. Similarly, a public health insurance plan would enjoy the presumption of a government backstop.

Such explicit or implicit subsidies would prevent a public plan from providing honest competition for private suppliers of health insurance. Instead, the public plan would likely undercut private firms and get an undue share of the market.

President Obama might not be disappointed if that turned out to be the case. During the presidential campaign, he said, “If I were designing a system from scratch, I would probably go ahead with a single-payer system.”

Of course, we are not starting from scratch. Because many Americans are happy with their current health care, moving immediately to a single-payer system is too radical a change to be politically tenable. But for those who see single-payer as the ideal, a public option that uses taxpayer funds to tilt the playing field may be an attractive second best. If the subsidies are big enough, over time more and more consumers will be induced to switch.

I think this is the point that some progressives are willfully evading. Ezra Klein recently described one possible version of the public option that "would have no special advantages over private insurers. It couldn't use the low rates that Medicare sets or access taxpayer subsidies. It couldn't force its way into networks. It would simply be another insurer, albeit with different incentives than traditional insurers."

If the president and his supporters truly believe that a public option would have no advantage over private plans, why are they pushing for it? Proponents of the public option seem to be arguing that simply taking the profit motive out of health insurance could generate lower prices. But there are already many nonprofit health care organizations, and their rates are comparable to other private health insurance companies.

So what's the real purpose of the public option? Is it, as the doubters claim, simply a backdoor to single-payer?