Another View: The Private Plans Might Drive the Public Plan Out of Business

This is from Ezra Klein:

Paul Starr has an important column today on the dangers of a badly designed public plan. The issue essentially comes down to adverse selection. If the public plan becomes a dumping ground for the sick and the old, it will be too costly for the young and the healthy. Rates will go up, and conservatives will point to the plans as costing X percent more than private insurance, thus proving the inefficiency of the government.

Hat tip to Marginal Revolution.

Comments (4)

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  1. Ken says:

    Interesting point. However, I think the adverse selection could be offset by lower fees paid to providers.

  2. Tom H. says:

    Agree with Ken. I’ll bet on the government plan.

  3. Bart Ingles says:

    I don’t think lower provider fees would be enough to offset adverse selection. However I would be surprised if private insurers weren’t forced into whatever risk adjustment scheme is used for the public option. I don’t think employers will get out of ERISA or HIPAA regulations by virtue of purchasing through an exchange.

  4. John R. Graham says:

    I accept Mr. Starr’s argument, but not his conclusion. We can see by the behavior of the private insurers, which are strongly resisting the government plan, that they do not think that they can dump expensive patients.

    Mr. Starr does not believe that the government plan is a “Trojan Horse”. Well, that’s his right. However, the lemon dropping that he describes would be manna from heaven for the single-payer extremists who want government monopoly. It would allow them to increase taxes on the private carriers to compensate, putting them into a death spiral and out of business.