In response to Greg Mankiw’s skepticism on the public option Free Exchange writes

Mr Mankiw is assuming that the public option would use its market power to force down the price of services in a manner that would discourage potential doctors and nurses. But that doesn’t have to be the case. A dominant public option might restrict the services available to subscribing patients to those justified by a standard cost-benefit analysis. In other words, it might create a fragmented market in which the government offers affordable but restrictive coverage, while private firms compete based on the market niche left to them—a willingness to cover all treatments at a higher premium level.

Is this likely?

That is, will a public plan actually reduce the services that patients consume? There are two major pieces of evidence that I see:

1) The history of government restricting patient access to care in the United States is not good. That is, when the government gets involved it is usually to expand access to services. Conventional wisdom is that here in North Carolina, Medicaid will pay for services that are denied by the State Employees Health Plan. I have not independently verified this, but everyone I have talked with seems to think it is true. This does not bode well for a government run plan that seeks to restrict patient options

2) The history of government restricting patient access to care in the rest of the Anglophone world is pretty good. I am thinking particularly of Canada and the UK. Despite incessant complaints about the options available both single payer systems seem to be pretty good at squeezing down on costs.

 

I am not sure which model would dominate in a US with a public option. My intuition leans toward the first. However, once a public option is implemented deficit hawks will be pushing for benefits to be limited. This adds some momentum towards cutting costs. On the other side, though, patient advocates will be pushing for more coverage.

Perhaps, the Free Exchange scenario could be implemented if the law ensures that that the public option cannot be the only option that an employer offers. Or, that the firm can do so only after paying a fee. This keeps private health insurance alive and it allows deficit hawks to say “if you really want more care just buy the private version.” I am still doubtful, however, that this will satisfy patient advocates.

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