Pros and Cons of Public Option and Single-Payer Healthcare

Among progressives in the United States, there has been a break on the issue of government backed health insurance. Medicare-for-All was first brought onto the debate table by Bernie Sanders, and has garnered the support of many progressives who believes healthcare is a basic human right. This energy has been strong enough that nearly every single Democrat presidential primary contestant has Medicare-for-All in one form or another within their policy platforms. The largest break comes from whether we should have a “public option” government healthcare, where people can choose to pay and purchase a non-profit government plan, or “single-payer,” where the government simply taxes everybody and everybody will automatically be enrolled.

Today, I would like to discuss the pros and cons of both versions, and why the difference isn’t really big enough to warrant infighting among progressives. I will also focus on the differences between the two plans, rather than going in depth about the benefits that both plan share.

Single-Payer Pros

Single-payer health insurance has a lot of immediate benefits. One, it may be easier to administer for both the government and doctors, because there is only one system, and one size can fit all. Two, it guarantees that everybody in the country will have healthcare insurance, and thus saves taxpayers from having to subsidize those that choose to not buy insurance and end up in the emergency room on the public’s dime. Three, and perhaps also most important to some of single-payer supporters, is that this is a revolution against health insurance companies. Lobbyists from the healthcare industry has long flooded Washington with money, and thus perhaps change cannot occur without directly eliminating health insurance companies. Finally, if government insurance is the only option out there, hospitals and doctors will have no choice to accept it, thus giving the government immense power on how much it wants to pay.

Below is a quick list of pros:

• Easier to administer
• Everybody will have healthcare
• Revolution against health insurance companies
• Monopsony power for government
• Removes the possibility of a “two-tiered” system (explained in more detail below)

Public Option Pros

A public option, on the other hand, wants to provide healthcare to all with a basis rooted more in capitalism. The idea is if the government creates an equally efficient health insurance system, and is operating non-profit, there is no reason that any for-profit health insurance companies can compete.

Second, it maintains the aspect of innovation that capitalism is proud of. For instance, private health insurers may develop a new way to provide insurance to consumers very efficiently. In the near future, we can likely automate a lot of the insurance process (from underwriting to claims submission). Thus, private insurers could bring the marginal costs of these areas to near zero, while the government must still charge hundreds of dollars for the government employees doing these functions. In such a scenario, even if private insurers decides to earn a profit, consumers will still find it cheaper to buy insurance from private insurers. Any profit also needs to be generated in accordance with the medical loss ratio under the ACA, which requires 80% of health premiums to be used on actual medical claims, with the remaining 20% for overhead costs and profit.

Third, a public option will be less disruptive. This point is generally moot, because most plans will have a phase-in period in one form or another. A point to note, however, is the longer the phase-in period a single-payer plan has, the less short-run benefits it will have for being a single-payer (this will be explained in the later section). Nonetheless, it is easy to see why a public option will be less disruptive. It does not fundamentally change the market in this area, but rather places the government as a market participant and competitor. If the government plan is horrible (e.g., very inefficient), then no real harm done. If it is amazing, private insurers will be squeezed out naturally.

Fourth is regarding individual choice. When the Supreme Court struck down the individual mandate of the Affordable Care Act, one of its basis is on the aspect of individual choice. For example, a healthy individual may decide that he simply does not want health insurance. Or, an individual may be participating in some direct coverage plan with a health clinic or company. Naturally, the goal of all insurance companies (whether public or private) will be to try and get these healthy individuals into the insured pool, because they will share the costs with those that are in need of more healthcare. But this would be similar to forcing a person living in a desert to get flood insurance, to lower the costs of those living in areas that get hit by hurricanes every year. There is a counter argument, however, that this removes the costs to taxpayers for uninsured people going to emergency rooms.

Counter-Arguments to Single-Payer

One of the greatest arguments to single-payer health insurance over public option is that it will remove a “two-tiered” system, where private insurers simply dump all the sick patients into the public option, thus making the public option more expensive. This is certainly possible in the short run, but not really an issue in the long run. As long as the quality of care provided is the same, there is no reason for any customers to choose a private insurer that might dump them as soon as they get sick. Thus, it’s simply bad business practice for insurers to “dump” the sick people.

In fact, I worry that this problem is worse for a single-payer system with a phase-in period. Without having to worry about long-term goals, health insurance companies will have an immediate incentive to “dump” the unprofitable individuals. This will cause the initial years of a single-payer option to have exorbitant costs, and will likely be used as an avenue of attack for people against “socialism.” Combine that with the fact that health insurance companies will not go down without fighting, I predict years of chaos.

Counter-Arguments to Public Option

One of the biggest pros to the public option is that it is not disruptive, but this is also its biggest con at the same time. Given the power of the healthcare industry, will a balanced approach like the public option actually allow the people to fight for their healthcare? Also, it will be expensive to immediately cover the 8% uninsured Americans right now, without a solid base of healthy individuals that can split the cost of insurance. Inevitably, people will still fall in between the cracks, and not have health insurance. This is unacceptable for people that believe health care is a basic human right. There are ways to counter this, but without a detail proposal connecting the dots, it is hard for progressives to see a public option as anything more than a incremental step that simply won’t do enough.

Health Insurance is but a Small Piece of the Puzzle

I think that progressives get to caught up in trying to destroy health insurance companies and removing the “middle man.” When in reality, the profit they generate are only a small piece of the puzzle, and highly regulated by state laws and the Affordable Care Act. They are an easy target, because that’s who we pay our bills to. But, it is not the health insurance companies charging thousands of dollars for an ambulance ride, nor the are they the ones charging crazy drug prices. We need to look at the bigger picture, on how pharmaceutical companies are abusing our patent system, on how the AMA is artificially limiting our supply of doctors, on how regulation barriers are multiplying the administrative costs of hospitals, and on how doctor’s incentives are not aligned with the patient’s health.