The Public Option: The President’s Analogy

In President Obama’s address on health care reform to Congress last night (September 9) he argued for a public option to private health insurance as an alternative, to compete with private insurers and give them an incentive to be responsive to their customers.

Some critics have argued that with the advantages of government backing and the taxes the president is advocating on private suppliers, the public option would crowd out private insurers and most people would end up on the government’s plan.  President Obama responded to this criticism by noting that despite the existence of public universities in every state private universities remain an option.  Interesting analogy!

Looking at higher education enrollment, 75% of students are in public colleges and universities and 25% are in private.  The census bureau reports that about half of 18-22 year olds are enrolled in higher education, so if we include those outside the system, the private sector covers only about 12.5% of that age group.

I don’t want to push the president’s analogy too far, but at the same time there is a similarity between education and health care plans here.  The cost advantages of the public option (that’s why the president wants it) will entice people to sign up, leaving those upper-income people who are willing to pay more getting the upper-tier service given by private suppliers.

If the public option were implemented, how much of the market would it take up, and how much would be left to private insurers?  If the president’s education analogy holds up all the way, most people would be on the government plan and private insurance would cover 12.5-25% of the market.  It’s the president’s analogy I’m working off here, not some idea of my own.

Is this realistic?  Both Canada (since 2005) and Britain have national health care with a private option, and in both cases almost everyone is on the government plan because of the lower cost — which, again, is why the president supports it.

How good will your care be with the public option?  We’ve heard stories about the long waits and denied procedures in both Britain and Canada.  Here’s another one.  A few years ago a friend of mine was in Europe when he developed an eye problem that required surgery.  He checked into a British hospital and had the surgery right away, paid for by his American insurance.  His eye surgeon told him that had he been on Britain’s national health care, he would have had to wait 18 months for the surgery.  My friend — and any Brits who were insured or willing to pay outside Britain’s government plan — were housed on a separate floor of the hospital and got their treatment immediately.

Is this how the United States would be under the public option?  I don’t know, but most Americans are happy with the health care they receive now, so they are justified in being concerned about impending changes.

If the president’s analogy really holds, and the public option is really put into place, you will be able to keep your current coverage (except that it will be modified by additional regulations).  However, most people will be on the government plan and only the most well-to-do 12-25% of the population will remain with private insurance.

I don’t know if that’s what the president meant, but that’s what he said.  And if you reflect on it a minute, it’s not unreasonable to think that public health insurance will do to private health insurance what public education has done to private education.

Randall G. Holcombe is Research Fellow at the Independent Institute and DeVoe Moore Professor of Economics at Florida State University. His Independent books include Housing America: Building Out of a Crisis (edited with Benjamin Powell); and Writing Off Ideas: Taxation, Foundations, and Philanthropy in America .
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