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Blog

    Robert Reich's "public option" deceptions

    06/25/2009

    Although this note may seem similar in content and intent to my note yesterday about Barack Obama’s outrageous news conference, Robert Reich’s Wednesday WSJ plea for government-run health care deserves an equal smack-down.

    Reich’s entire article is filled with misleading statements – not quite lies, but with the same effect. Let’s go through his opinion in some detail:

    Reich starts off by saying that the public wants health-care reforms and that nearly 3/4 of respondents in a WSJ/NBC poll say they want a “public option” for health insurance. However, Reich ignores another result from the very same poll: “But when told the arguments for and against the plan, a smaller portion, 47%, agreed with arguments in support of the plan, with 42% agreeing with the arguments against it.” And that’s before the public learns about the plan’s likely costs.

    An ABC/Washington Post poll shows that strong support for “a universal health insurance program” drops dramatically if it means any limitations on choice of doctors or rationing of medical care, both of which would undoubtedly happen under ObamaCare.

    Furthermore, “Among insured Americans, 82 percent rate their health coverage positively. Among insured people who’ve experienced a serious or chronic illness or injury in their family in the last year, an enormous 91 percent are satisfied with their care, and 86 percent are satisfied with their coverage.”

    So, Reich is simply selecting the poll numbers which make it appear that the public agrees with him whereas the truth is quite different.

    Next, Reich says that CBO estimates for a public plan likely overstate the plan’s costs. It’s a very important point – and Reich is very wrong for two main reasons. First, every government health care program (i.e. Medicare, Medicaid, and SCHIP) has busted every budget estimate ever made for them. People like Reich like to argue that Medicare’s administrative costs are lower than those of private insurers. But those statistics are also incredibly misleading for several reasons:

    * Medicare is rife with fraud at a scale which would never be tolerated, or even possible, under private plans

    * Private companies’ profits are counted as administrative costs

    * Some of Medicare’s operating costs, such as raising money, are borne by other parts of government (i.e. the Treasury department). It’s still a cost to taxpayers, of course, but is misleadingly left out of calculations of Medicare’s cost of operations.

    After these and a couple other reasonable adjustments, Medicare’s cost advantage disappears.

    Reich also makes the incredible statement that companies in the health care industry “have little or no incentive to supply high-quality care at a lower cost than they do now.” I had to read it twice to make sure he really said that. First of all, to the extent that there is competition among health insurers, they obviously have that incentive. Second, to the degree that Reich thinks that the health care industry isn’t competitive, why does he not suggest the most obvious fix to what ails it: Allow people to buy health insurance across state lines, as we can with car insurance.

    Reich states that “no one has to choose” the public option, so it doesn’t represent a “government takeover of all of health insurance.” But that’s simply ridiculous. Studies show massive “crowd out” of private insurance for governments’ SCHIP programs, as people leave their private insurance for their free lunch. Another example of crowd-out, outside of health care but just as an example of what happens when government gets involved, is in Texas’ coastal property insurance market, as described in THIS comment to my blog note of yesterday.

    Reich says that the government will negotiate better prices than private companies will. But where in history has that ever been demonstrated to be true? And in Medicare Part D, it is the truly private competition within the plan that has kept its costs down – and it was that competition which led many Democrats to oppose it.

    Reich makes a strange comparison between non-profit health plans and for-profit health plans, missing the important points that non-profit plans still must operate efficiently and that just because a company is “non-profit” does not mean it does not earn a profit! For example, the non-profit Kaiser Permanente had a net profit of $794 million in 2008, or about $92 per “member". Comparing to two of the biggest for-profit health insurers, this is a higher per-member profit than WellPoint, at around $71/member, and just barely below the $102 per insuree profit of United HealthCare.

    Reich tries to argue that the public plan won’t be subsidized by the government. Does anybody actually believe that? Isn’t that what Barney Frank said about Fannie Mae shortly before handing it tens of billions of dollars of taxpayer money (which it is now burning through.) Of course the plan will be subsidized by the government, either directly or indirectly. It may (and will likely be) so inefficient that it will require direct cash infusions. But it will be indirectly subsidized by, as I mentioned before, handing off parts of its operations to other branches of government to hide the apparent cost.

    Essentially every argument Reich makes for the public plan is a misleading use of often-erroneous data or simply his naive hope that government will manage a national health care system differently than it manages anything else, including existing government health care systems.

    There’s one thing I’m tempted to agree with Reich about. Obama probably should “come out swinging for the public option” because that increases the chances that no health care legislation will be passed. And passing nothing is certainly better than passing any of the current Democratic plans and probably better than most of the Republican ones.