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Is the public option dead?

September 17th, 2009

The public option was supposed to be the Democrats’ crown jewel of health care reform. But while President Barack Obama talked about all the advantages of the public option during his health care speech last Wednesday, in the end, he admitted that he could live without it. And with Republicans condemning the public option as a stealth attempt by the government to take over the health care system, it seems as though the public option may be dead. Or is it?

There are two factors that determine how effective a public option could be: how it’s funded and who it’s available to. 

If it’s funded by the government and available to everyone, then yes, the public option would probably turn the United States into a single-payer system sooner or later. Backed by the government’s virtually infinite amount of funds, it wouldn’t have to worry about going bankrupt, so it could unfairly offer the cheapest insurance prices to its customers. And as more people switched to the cheaper public option, private insurance companies would be driven out of business. Boom, single-payer.

But that’s not the type of public option that Obama supports. Instead, he wants to set up a “self-sustaining” public option that’s funded not by taxpayer funds but by the premiums that it charges. In other words, the amount of revenue it generates would be just enough to cover its health care expenses and pay its employees. 

On the other hand, a private health insurance company also has to pay its shareholders. And since its shareholders expect to make a profit on their investment, private insurance companies set aside more money each year for them, resulting in higher insurance prices for their customers. 

So Obama’s public option would fairly increase competition in the insurance market by forcing private insurance companies to focus less on paying shareholders and more on reducing costs.

However, some conservative Democrats have suggested making the public option available only to certain groups, like small businesses or part-time workers. But this wouldn’t give the public option a big enough share of the insurance market to really compete with private insurers, so it wouldn’t be able to effectively lower health insurance costs, regardless of how it’s funded.

Unfortunately, Republicans are determined to kill the public option no matter what. Fortunately, there’s a pretty good alternative: non-profit health insurance cooperatives. Fundamentally, they would function the same as Obama’s public option: they would be “self-sustaining” and, as non-profit entities, they wouldn’t have shareholders, so they could use any extra profits to reduce health insurance costs for their customers. So as long as they’re available to everyone, they could have the same impact on the health insurance market as a good public option would have. 

Furthermore, they’re less controversial. Why? I’m not sure. Maybe Republicans fear that Democrats would try to add on to Obama’s public option, if enacted. Nonetheless, a non-profit cooperative is basically a public option “incognito.” And not only could it lower costs, but it could even transform the private insurance industry to a non-profit industry, which would benefit Americans all the more.