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Commentary By David Gratzer

Demand the Public Plan Compete: That's The Only Way To Salvage Obama's Bad Idea

Health, Health Healthcare

In his speech to the American Medical Association, President Obama went further than ever before in his call for a “public option” in any health care reform package. After he listed several worthwhile proposals to increase insurance competition, the President told doctors that these measures would work best if there was a public insurance plan competing in the private marketplace “to keep insurers honest.”

But who’s watching the Watchmen? If a government plan created with unfair market advantages is the best way to “keep insurers honest,” why should American taxpayers believe the government plan will be any more honest?

Republicans and Democrats who want to save what’s good in America’s health care system will fight to stop the public option, and rightly so. But if they fail, Congressional leaders must consider damage-control measures.

If a public insurance plan is created, what can Congress do to make the best of a bad idea?

The key: Hold the White House to its word. If the Administration’s true motive is to make the private market more competitive, then the President should have no problem with conditions that make the public insurance plan face the same market realities as its private competitors.

The most obvious unfair advantage for a public plan is financing. Government entitlement plans worldwide are referred to as “social insurance,” but few are really insurance plans. In the private sector, insurers must invest their premiums - not just to pay for operating costs, but also to anticipate reasonable liabilities. In contrast, socialized “insurance” plans tend to be pay-as-you-go systems that begin with low premiums and generous benefits. Over time, governments trim benefits and raise premiums - in other words, care gets rationed and taxes are raised.

Knowing this, Congress must insist that any public option be a real insurance plan - fully funded by actuarially-backed premiums, and buttressed by conservative investments. And Congress should insist that the public plan fully factor for the cost of capital, since few private plans were able to start their business backed by the full faith and credit of the United States government at interest rates of less than 4%.

To keep the public plan “honest,” Congress should force any public plan to comply with the same regulations, mandates and administrative headaches faced by private insurers. Medicare has lower overheads than private insurance plans in part because it is a federal spending plan, not a regulated private insurance plan.

Washington can pick and choose how it spends Medicare dollars, where private insurance plans must cope with different rules in different states. In some states, if a couple divorces and the family was previously insured, insurers are required to extend coverage to the spouse for a certain time - in New Hampshire, extended coverage can last three years. And in many states, private insurers are legally required to offer direct access to specialists without a referral by a family doctor, increasing specialist visits and spiking insurance costs as a result.

Will the public plan comply with those mandates, or simply use its federal birthright to bulldoze past state regulations? If the President is sincere and he wants a fair market comparison, then the public plan should have to follow every state mandate and requirement to the letter.

Of course, these conditions would destroy the advantages of a public plan. And that is exactly the point: a public plan option can only serve to “keep insurers honest” in a balkanized marketplace if it is constructed behind a shield of market-distorting laws and subsidies. With those advantages, it can offer cheap premiums without serving as a real competitive benchmark. Years later, the “cheaper” public plan will have trounced so many private insurers that there won’t be many competing companies left standing to serve as competition for the public system.

Far better: Congress and the White House should work together to facilitate real competition in the marketplace. But the White House insists it needs a new federal social program in place before any marketplace can be competitive.

A new social program to make the marketplace more competitive? And the President wonders why some people look at the words “public option” and see a Trojan horse instead.

This piece originally appeared in New York Daily News

This piece originally appeared in New York Daily News