The public option isn’t real health care reform. Real reform is harder than that.

By Roosevelt Institute |

trojan-horse-150Shaping the future with today’s choices.

With its soft pull-back from a public option, the Obama Administration has created a possible path to a new and viable approach to health care (and health insurance reform). It has also posed a challenge to progressives to begin redefining themselves in ways more appropriate to the 21st century.

The public option has for some time seemed to be a non-starter politically, but it should have been a non-starter substantively also. Those who support this option because it is a Trojan horse for a single payer system are the most honest -– that’s where you get with a public option. The problem is we cannot afford a universal single payer system; we can’t even afford Medicare, the single payer system we already have.

Those who see the public option as competition to a predominately private insurance system have substituted labels for reason. How could this “healthy competition” possibly be the end result? How could a private business ever compete with a public option? The public option had three major advantages: no — as in, 0% — cost of capital; power to force suppliers to lower their prices; and the implicit guarantee that this competitor could never go broke. Who would ever willingly put up their own private capital against that kind of competition? This rationale for a public option is based on one of two kinds of reasoning: sophistry, or a profound misunderstanding of the most elemental facts about markets — starting with the reasonably clear proposition that people prefer not to invest their own money in ventures they know in advance to be losers.

But in my view the major and hidden opportunity cost of a public option has been that it has precluded any discussion of a much more important question. How can we build a real, functioning health insurance market? To date liberals and progressives have simply seemed to assume this was impossible, pointed to the preexisting conditions problem as evidence of industry’s basic evilness, and declared war on private health insurance. This end of the political spectrum has, once again, become allergic to any actual discussion of markets. On the other hand, the “right” has offered up its normal reflexive obeisance to anything called market based, but has been completely devoid of any actual ideas.

We don’t have a market today, and we might spend some energy figuring out how to build one. About 165 to 175 million Americans have private health insurance. About 15 to 20 million of these buy insurance as individuals; the remaining roughly 145 million people are part of the employer based system (a number that has been roughly constant for a decade). If you receive health insurance as an employee –- as I have throughout all of my private sector career -– how do you get it? How does it happen? Right. The human resource department of your company made a choice –- who knows on what basis? –- and you were told. That’s not a market.

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