Wednesday, October 28, 2009

The Public Option: Building A Better Trigger

OK, Democrats, put your money where your mouths are. Republicans and Democrats in Congress have both made the public option the main focus of the debate on health insurance, even though both sides know it would affect only a small minority of people. Republicans say it's another step on the road to serfdom (I'm paraphrasing); Democrats say that it's needed to assure competition.

Interestingly, a number of the states with the least competition have Congressmen who are adamantly opposed to a public option (i.e., Republicans). A 2002 study by the GAO  reports that the single largest insurer in North Dakota has a stunning 89% of the market. The figure is 87% for Alabama,  55% for Tennessee, and 52% for Alaska. Blue states are not immune, though; the largest insurer in Michigan has 63% of the market.

But if we need a public option to assure competition, the obvious alternative is to have a public option only in those markets that are not already competitive. I'll defer to the Industrial Organization specialists on exactly how that would be defined, but we might say, for example, that there would be a public plan in any market where one firm had a market share over 40%, or three firms over 75%.

Now, to the extent that either Republicans or Democrats in Congress see the public option primarily as a sort of camel's nose that will eventually lead to a single-payer system, this approach won't change any views. But in the battle for public opinion, it has advantages for both sides. Democrats can say, "You say you believe in market competition. How much competition is the market providing in Alabama?" Republicans can say, "You claim we need a public option to provide competition, but here's a list of states that already have plenty of competition." Of course, to make that credible, they would have to support a repeal of the antitrust exemption for health insurance.

A Republican Party that had ideas would have come up with a plan to create private-sector competition in the health insurance industry.  Alas, that's not the Republican Party we have. (See my posting of September 17.)  So they've left it to Democrats to be the advocates of competition. Perhaps the two Republican moderates left in Congress can salvage something by supporting a market trigger instead of a cost trigger.

A public option that does what it's supposed to do. Why should that be a novel idea?

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