The promise of the public plan is a mirage. Its political brilliance is to use free-market rhetoric (more "choice" and "competition") to expand government power. But why would a plan tied to Medicare control health spending, when Medicare hasn't? From 1970 to 2007, Medicare spending per beneficiary rose 9.2 percent annually compared to the 10.4 percent of private insurers -- and the small difference partly reflects cost shifting. Congress periodically improves Medicare benefits, and there's a limit to how much squeezing reimbursement rates can check costs. Doctors and hospitals already complain that low payments limit services or discourage physicians from taking Medicare patients.Fred Hiatt
The claim merits skepticism. If, as advocates sometimes argue, a public plan operates without favoritism, it will be simply one more entrant in the marketplace. Like other companies, it will have marketing and administrative costs. In some markets served by few private plans, it could offer a useful alternative. But it won't radically reduce costs.
If, as advocates argue at other times, the point is to insure sick people whom private companies, despite all regulatory efforts, find ways to shun, the public plan could offer a valuable safety net. But that wouldn't save money.
And if, as seems likeliest -- and as House legislation mandates -- the plan uses government power to demand lower prices from hospitals and drug companies, those providers may lower quality or seek to make up the difference from private payers. Private companies would have to raise their rates, so more people would choose the public plan, so private rates would rise further -- and we could end up with only the public option and no competition at all. Single-payer national health insurance may be the best outcome, but we should get there after an honest debate, not through the back door.