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Public Option will lead to a Single Payer System

Excerpts:  The 'Public Plan' Would Be the Only Plan   Harrington

It's impossible for private insurers to 'compete' with government.  WSJ, June 15, 2009

Equal public-private competition in reimbursing hospitals and physicians is likewise a nonstarter. One proposal is for a public plan to pay Medicare rates, perhaps with a small markup. Because Medicare reimbursements already entail substantial cost-shifting to private payers, any expansion of Medicare payment rates, with or without a modest markup, would further shift costs to private payers and accelerate the crowd-out of private plans.

The alternative of having private plans reimburse providers at public-plan rates would require significantly higher reimbursements than under Medicare to avoid bankrupting many hospitals and physicians. This "single-payer light" approach would produce universal price controls on medical services and raise the obvious question: Why bother with private plans?

With or without a public-plan option, reform legislation is almost certain to substantially narrow the dimensions on which health plans compete. Given the fixation of many reform proponents' on attempting to ensure that no person's premiums or coverage terms will be related to health status, private plans will be required to accept all applicants, probably at rates that vary only with age and geographic region. There will be heavy constraints on benefit design and marketing, perhaps with ex post transfers of funds among insurers to even out profitability. Under the guise of preventing "cherry picking" health customers, a government-run plan could easily be accompanied by additional constraints or surcharges on private plans to deter them from offering attractive options.

The simple truth is that equal competition between a government health-insurance plan and private plans would be impossible. An ostensibly competing public plan would make a single-payer system inevitable. Health-care providers and other Americans should recognize this reality and be prepared for the consequences.

Mr. Harrington is professor of health-care management and insurance and risk management at the Wharton School of the University of Pennsylvania.