Published: June 26, 2009 10:29 pm      

Yes to private option, no to public option

EDMOND — The progress of health-care reform legislation is still in the early stages of the legislative process, but the sharp disagreement over whether the plan should include a government-run health insurance plan threatens the overall reform’s progress and eventual passage.

Many Democrats, including most Democratic leaders, are pushing for the inclusion of a public (government-run) health insurance option to compete with private health insurance plans. While many centrist Democrats (including this columnist) are joining with Republicans to oppose this move.

Supporters of the public option argue that a public health insurance option would give consumers more choices. Yet, one does not need to add a government plan to give consumers more choices. In reality, opponents of the public option have devised plans to give consumers more choices among private plans.

Supporters of the public option argue that only a government-run plan can achieve the size necessary to negotiate lower prices. Yet, there are already several large private insurance companies. The BlueCross BlueShield family of companies currently provides insurance to more than 100 million customers nationwide. It is hard to imagine that a government-run plan could benefit from economies of scale any more than BlueCross BlueShield already do.

Finally, supporters of the public option argue that a government-run plan is necessary because only a government-run plan would focus more on the needs of customers than on profits. However, government-run enterprises are typically less responsive to customer needs than are private firms. This is because in a capitalist economy the only way for a firm to receive profits is to satisfy the needs of their customers. If they fail at this, their customers will simply turn to one of their competitors. In other words, profits give firms the incentive to satisfy their customers.

But to many, this does not seem to be happening in the health insurance industry. There have been too many horror stories of insurance companies not paying on claims that they promised to pay, of insurance companies dropping customers in order to avoid covering their large medical costs, and of insurance companies more motivated by greed than compassion. It is no wonder then, that so many Americans are willing to turn to an imperfect government over what they see as an uncaring insurance industry.

Why do so many people not trust the insurance industry? If private firms really do, as I claim, only make profits by satisfying customers, then why aren’t more people satisfied with their health insurance? Why are so many willing to turn to a government enterprise, not known for its efficiency, compassion, or service?

It is a good question. And the answer exposes one of the most troubling aspects of our current health care system, and one of our most pressing needs for reform. It turns out that many of us who pay for our health insurance are not the insurance companies’ customers at all.

For many Americans, their only access to group health insurance comes from their place of employment. Even though they pay the premiums, the choice of plans is made by their employers. In such cases, insurance companies make their profits by satisfying the needs of the employers and not the employees.

Imagine what life would be like if you had to pay for your automobile, but did not get to choose that automobile. Or if you had to pay for your clothes, but did not get to pick your clothes.

Undoubtedly, in both situations you would be less satisfied. For many Americans, this is essentially how they purchase health insurance — they pay the cost for a plan someone else picked.

There is a better way that does not require a new government-run program. Instead of the current system, we can take the employers out of the equation altogether and allow consumers to buy group health insurance directly from the insurance companies.

This would force insurance companies to focus more on the needs of consumers than on the interests of employers. Furthermore, this would allow consumers to choose the health insurance plan that best fits their personal needs.

Despite all of the talk surrounding the public option, the role of government is not to create a new government-run insurance plan. Instead the role of government is to create a market for group health insurance that enhances competition, that refocuses attention on consumers’ needs, and gives consumers more choices. Unfortunately, proponents of a public option fail to recognize that adding a flawed government plan is not the best way to solve a flawed health insurance system. We need more private options, not a flawed public option.

MICKEY HEPNER is an associate professor of economics at the University of Central Oklahoma.