Healthcare reform proposals highlight economic privilege

In my first daily newspaper reporting job many years ago, I covered a state legislature. The experience taught me many lessons, a significant one being that all governments devote considerable attention to allocating economic privilege. This truism holds whether the government is run by liberals or conservatives. But the basic fact is that governments big and small make decisions that favor one economic interest over another.

I say this now, because as the healthcare reform debate heats up in Congress this summer, we could see a discussion about who should win and who will lose. Already, we’re seeing a battle over one economic privilege held by patients who are covered by the Medicare Advantage program. Enacted in 2004 by conservatives in Congress, this program still enjoys conservative support. It funds improved benefits for Medicare patients covered by private plans and, one presumes, creates profits for the companies that provide those benefits. This year, however, Advantage will cost Medicare $11.4 billion over and above what it would normally have paid for the same population. Liberals figure they’ve got a better way to spend that money, and they want to take the economic privilege away.

Expect the liberals to win this one. Support for this program has weakened over time, and the cost is too large to overlook. The Commonwealth Fund, which provided the estimate above, figures the added cost of the program at $43 billion since it started. The Congressional Budget Office estimates the added 10-year cost at $157 billion.

An even more consequential battle will take place over the proposal to set up a public healthcare plan to compete with private insurance plans. Suggested initially by President Obama during his campaign last year, the idea is to have a public plan to compete with private insurers and to cover those who can’t otherwise get insurance. The private insurance companies are worried about this, and they should be.

It’s long been known that private insurance companies spend between 15% and 20% of the money they get for health insurance premiums on administration and profits. Compare this with Medicare, which spends only about 2% to 3% on administration and the rest on benefits.

Now consider that the likely model for a public health insurance company would be Medicare. In fact, the easiest way to create such an entity would be to expand the Medicare program. Could an expanded Medicare give private insurers a run for the money? You bet, especially if it underpriced the private insurers.

No wonder senior Republican senators said recently in a letter to Obama that “forcing free market plans to compete with these government-run programs would create an unlevel playing field and inevitably doom true competition. Ultimately, we would be left with a single government-run program controlling all of the market.”

Unlike the demise of the Medicare Advantage program, this one is far from a slam dunk. Some conservative Democrats will join Republicans in opposing the public plan idea. Further, legislation could hobble the public plan’s ability to compete with private plans, even if it is enacted.

But the battle could be close. A public already restive over the multibillion-dollar bailouts Washington has given to insurers, banks, and auto companies may not be easily swayed by arguments that we should protect the interests of private health insurance companies. Attempts by Congress to allocate economic privilege in this environment will be scrutinized as never before.