Health-care public plan is an exercise in political avoidance

WASHINGTON — In the health-care debate, the "public plan" is all things to all people. For supporters, it would discipline greedy private insurers and make health coverage affordable. For detractors, it's a way station on the path to a single-payer insurance system of government-run health care. In reality, the public plan is mostly an exercise in political avoidance: It pretends to control costs and improve access to quality care when it doesn't.

As originally conceived by Yale political scientist Jacob Hacker, the public plan would be a government-created, nonprofit insurance company providing Medicare-like coverage to the under-65 population. But unlike Medicare, benefits would be paid for mainly by premiums — not taxes.

Americans could buy coverage from the public plan or a private insurer. Competition and choice would increase, say liberals. Facing the low-cost public plan, private insurers would hold down their own premiums, the argument goes. Health-care costs for everyone would moderate.

Government subsidies to provide universal coverage would be cheaper. By some estimates, Medicare's administrative costs are only 3 percent of spending compared with 13 percent or more for private insurers. A new public plan is widely presumed to enjoy an advantage in overhead.

Nonsense, retort critics. The public plan's low costs would be artificial. Its main advantage would be the congressionally mandated requirement that hospitals and doctors be reimbursed at rates at or near Medicare's. These are as much as 30 percent lower than rates paid by private insurers, says the health-care consulting firm Lewin Group. With such savings, the public plan could charge much lower premiums and attract lots of customers. But health costs wouldn't subside; hospitals and doctors would offset the public plan's artificially low reimbursements by raising fees to private insurers, as already occurs with Medicare. Premiums would increase because private insurers must cover costs to survive.

As for administrative expenses, any advantage for the public plan is exaggerated, say critics. Part of the gap between private insurers and Medicare is statistical illusion: Because Medicare recipients have higher average health expenses ($10,003 in 2007) than the under-65 population ($3,946), its administrative costs are a smaller share of total spending.