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The Public Option Leads to Government Domination of Health Care

This month saw the very happy news that cancer rates are sharply down in the United States. As with any medical trend, the underlying reasons are multiple, but one is the appearance of new drugs on the market. Particularly promising is a whole new class of drugs that use the body’s immune system to attack cancer. The mechanisms by which such drugs work were not even understood 20 years ago.

The larger point is that medical innovation saves lives with discoveries that we did not even dream about when we were young enough not to need them, but then become available to lengthen our old age. Not only are these discoveries made principally in the United States, but they are also brought to market largely by U.S. companies. Moreover, the higher drug prices here spur innovation, while many other developed nations use government coercion and/or monopoly power to pay less for these life-saving treatments. Thus, this kind of medical news should remind us that many other countries free-ride on our medical system.

These sorts of innovations can only help patients, of course, if the medical system can effectively deliver them. Here again, the decline in cancer deaths in the United States should remind us of the many virtues of that system. It is true that almost all nations spend less on health care than the United States. But their rate of cures for serious diseases is generally lower. For instance, the vaunted NHS in Britain does far worse on cancer survival rates than the United States.

It is also true that the overall life expectancy of people in the United States is lower than in many other developed nations. But our relative success for cancer should remind us that that there are many causes of lower life expectancy other than medical treatment. For instance, we welcome very large numbers of poor immigrants, who may have grown up with poor childhood medical care that even good adult medical care cannot wholly ameliorate. And even some groups of native-born Americans face social pathologies that shorten lives. Inner-city violence and largely rural opioid abuse are good examples. The better comparison, therefore, would be similar groups that do not face such social pathologies. And here the news is encouraging. For instance, as I note in my book, Accelerating Democracy, Asian women, who have the highest life expectancies overall, generally have higher life expectancies here than in their home nations.

The relative success of the U.S. medical system underscores the dangers of putting it under government control. I have written in the Wall Street Journal of the danger of the single-payer system. A government monopsony over health care will predictably result in artificially low prices for drugs and medical services. The final result will be a slow degrading of the health care system that will hurt the poor as well as the rich.

But single-payer programs like Medicare for All face an uphill battle for popular support, as Elizabeth Warren has painfully learned. There is a reason that Barack Obama sold the Affordable Care Act with a promise, albeit a false one, that if you like your health care you can keep it. Even people who consider themselves good modern liberals are conservative in the sense they do not like to have things taken away from them. “If you like your health plan, you can’t keep it,” is not a campaign slogan well-designed to win a majority.

The much greater danger comes from the so-called public option that would allow anyone to enroll in Medicare or a program that looks much like Medicare. That is a much more politically attractive program. It does not state upfront that the candidate is coming for your health insurance. Indeed, by stressing the word “option” it builds on the idea of choice. And the sheer radicalness of single-payer ideas makes the public option look more moderate.

And yet the public option will lead to government control with the same ultimate losses to innovation and good care as the single-payer system. There is no reason to believe that the public option will engage in fair competition with other insurers or provide fair compensation for medical services. Political constituents will demand low-priced insurance, and the public option will use its enormous bargaining power and perhaps the coercive power of government to pay very low rates of reimbursement.

Because of its low upfront cost to users, the public option will lead some private actors to drop their coverage. They and their employees will decide it is better to have the government insure them than to pay the costs of coverage themselves. In excellent testimony before Congress, Scott Atlas of the Hoover Institute recently provided an excellent example of this crowding-out effect: “Consider the experience in Hawaii. Only seven months after offering Keiki Care in 2008, the country’s only state‐wide universal child health insurance, the program was ended. In fact, over 80 percent of those taking up the program already had private insurance.” It should not surprise us. Even the ACA led to some crowding out. That is why Obama’s promise that you could keep your health insurance if you liked it turned out to be untrue.

Because of its low reimbursement, the public option will also shift more health care costs to others in the system. As Atlas notes, this also happened in Hawaii. Thus, the result would be a death spiral for private insurers who will have to raise rates even as they compete against below-cost insurance. The spiral ends in single-payer—not by outright elimination of the competition, but by stealthy undermining.

The only way to guard against the success of this politically attractive, but disastrous policy for health care is for the Trump administration to make the private health insurance market more efficient and therefore less expensive. To its credit, it has already required more transparency in pricing which may help hold down costs. But bolder reforms are needed, particularly deregulation of the medical profession. For instance, the government should make it easier for nurses and physician assistants to perform at lower cost the work that doctors are now unnecessarily required to do.

But friends of liberty should not be taken in by apparent choice afforded by the public option. In opposing it, the life you save may be your own.

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