When CBO Director Doug Elmendorf testified before the Senate Finance Committee, he was asked whether a public insurance option would "crowd-out" private insurers. "Designing a system where the public plan could compete on a level playing field with private plans is extremely difficult," he said. "We are wrestling now with how we'd model proposals to do that. The centrist New America Foundation has a paper out today explaining exactly what that level playing field would look like, And, in practice, it doesn't seem too hard. The key is cleaving the public insurance option from Medicare. If the public plan can use Medicare's market share and payment rates, then it can easily overwhelm private insurers. If it's barred from acting as a quasi-national health plan, then it's just another insurance plan being run by government bureaucrats instead of insurance company bureaucrats and freed from the profit motive. In practice, this report will probably be used by folks on the Left to trumpet the fact that the public insurance option can be run on a level playing field. And indeed, it can. But those who wanted to see the public insurer act as a soft single-payer system -- where the benefits of massive market share are used to aggressively bargain down costs -- won't be too pleased. The reason that government-run systems arguably work better is that they use monopsony bargaining power to control costs. Take that away, and the public insurance option becomes a lot of fury over what amounts to one more non-profit insurance option. Indeed, you can even imagine an argument that asks whether you'd want a low-performing public option that would have little ability to cut costs and would thus undermine future reformers who wanted more substantial public involvement.
