Monday, July 27, 2009

Krugman Goes After the Blue Dogs on Health Care

Paul Krugman's latest op-ed in the NYT seems like a blatant attempt to shame Blue Dog Democrats into supporting the House tri-committee majority group's draft legislation on health care reform.

The Blue Dog's main objections seem pretty sensible to me. On the public option, the Coalition explains:

In order to establish a level playing field, providers must be fairly reimbursed at negotiated rates and their participation must be voluntary. A “Medicare-like” public option would negatively impact hospitals, doctors and patients. Medicare reimbursement is, on average, 20 to 30 percent lower than private plans and patients. Using Medicare’s below-market rates would seriously weaken the financial stability of our local hospitals and doctors.

The Congressional Budget Office's analysis of the new draft legislation suggests that the public option would offer rates that are, on average, about 10 percent lower than private insurers. The analysis also indicates that about one-third of those receiving subsidized health insurance will obtain coverage through the public plan.

However, the CBO notes that its estimate is "subject to an unusually high degree of uncertainty." (Here are some of the reasons why.)

The gap between political rhetoric and objective reality seems to be growing larger every day. The president says that the public plan would have no advantages over the private options. Krugman says that the public plan would inject "competition" into the health care system.

But if the public plan is allowed to set rates significantly below the market at the outset, it will likely garner a disproportionately large percentage of individuals who are forced to purchase insurance through an individual mandate, and whose care is subsidized by the government. This will enable the public plan to keep rates low for a number of reasons -- most of which have nothing to do with fair competition.

Whatever form it takes, a public option will inevitably have advantages over private plans. Greg Mankiw addressed this issue a while back:

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.

I think this is a point that defenders of the public option need to honestly engage with . . . rather than just attacking their intellectual adversaries' position as "incoherent."

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