Thursday, June 25, 2009

Will a public health plan kill private insurance?

President Obama says no, at least he used to. In many recent appearances the president has derided the notion that inclusion of a public health insurance plan will lead to government takeover of the industry. His argument usually includes a litany of the other challenges he faces (Iraq, Afghanistan, economy in shambles etc.) delivered in an exasperated tone to reassure everyone that he is not planning to take over health care. But unfortunately for the president, his constitutional powers of the veto do not extend to the law of unitended consequences.

The fact of the matter is one can believe the president with regard to his intentions and still believe that he is absolutely wrong about the consequences of the inclusion of a public plan.

Others, have already laid out entirely plausible scenarios where the healthy leave their private insurance and then in the case of a serious medical condition turn to the public option. This could have a double negative effect of causing private insurance to whither and producing a public plan where the majority of participants have massive healthcare bills.

Perhaps even Obama is beginning to rethink what the inclusion of a public option means:
"People have made some pretty compelling arguments to me that if we want to have a system that drives down costs for everybody, then we've got to have healthier people not opt out of the system," the president said in an exclusive interview with ABC's Diane Sawyer today on "Good Morning America."
His solution to this is a government mandate that individuals buy health insurance, with penalties for those that do not. If a successful and sustainable insurance program requires a mix of the healthy and the ill, regardless of who runs it, how else does the insurer attract both types of people? Is a federal law mandating the purchase of health insurance any more oppressive than a state law mandating the purchase of automobile insurance?

Health insurance is an unusual case since healthy people are quite sensitive to price and sick people are rather unsensitive to price. As I've argued before, this seems to be a substantial impediment to the formation of a free market solution to the health insurance question.

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