23 Feb 2010 White House Health Care Plan Contains Back Door to a Public Option, by Matt Patterson

President Barack Obama’s new health care proposal – more of an outline than an actual plan – builds largely on the Senate bill passed in December, and like that plan contains no “public option.”¹  But there is built into the President’s proposal a mechanism by which the public option may one day make a triumphant return.

The key is in one of the few new proposals to show up in the President’s plan, the creation of a “Health Insurance Rate Authority,” a new federal agency charged with monitoring health insurers to make sure that any proposed premium increases are not “unreasonable” or “unjustified.”²  This federal agency will have the power to compel private insurers to lower premiums, offer rebates, or “take other actions to make premiums affordable.”³

This is price control of the most egregious kind, and any industry subject to such draconian government oversight can scarcely be considered “free.”  But it does accomplish several important political goals for the President.  For starters, it has been widely interpreted as showing that Obama knows his plan will raise the cost of insurance premiums, and this is his way of diffusing the issue – he just promises to make premium hikes illegal!

Unless, of course, such a hike is “reasonable” or “justified.”  Who decides what is reasonable and justified?  The government, of course, which will also under the President’s plan dictate that insurers cover those with pre-existing conditions⁴ and saddle them with billion in new taxes and fees.  Now some insurers might argue, reasonably, that such strictures will all but force them to raise rates in order to stay in business.  Any guess what Uncle Sam will say to such arguments?  Sorry, tough cookie. 

And the health insurance industry, far from being the over-fed fat cat that Obama and his allies have successfully painted it to be, is in fact already one of the least profitable industries in America.  In terms of profit margin, it ranks a dismal 87th out of 215 industries; its overall profit margin was a timid 3.4 percent from 2008 to 2009.⁵

What do you think will happen when an already low profit margin industry is suddenly compelled to swell its rolls and simultaneouslytold when and how much, if at all, it can raise its prices?  They’d be a fool to stay in that business.  Maybe there are some fools running the health insurance companies, but not enough, I’d wager, to keep the whole industry afloat in the long run.

The Wall Street Journal predicts a “cascade” of insurer bankruptcies in the wake of such disastrous law,⁶ and its right.  One by one the insurance companies will go belly up, fold their tents, and hang a permanent “gone fishing” sign on their doors.  They will have concluded, quite rightly, that they are no longer wanted by the American government, even though they are desperately needed by the American people.  And so the well of choice for the individual health insurance consumer will steadily and remorselessly dry up.  So much for keeping the plan you like.

Eventually, and you may count on this, some senator or president, it may be Obama, it may not, will look around and say, “Hey!  There are no more insurance companies!  We’ve got to create a government one so people can get the insurance that we’re forcing them to have.”  Hello public option.  Hello single payer.  Goodbye choice, and goodbye greatest health care system the world has ever known.

The President’s strategy is clear:  First turn the insurance companies into government utilities.  Then run them out of business.  Then fill the void. 

Matt Patterson is a policy analyst for the National Center For Public Policy Research. 

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