More on the Pros and Cons of the Public Option

Richard Thaler (a well-known economist, born in NJ, too!) has a good piece in today's NY Times on the Public Option controversy surrounding health reform: "A Public Option isn't a Curse or a Cure." He says what I said (but I'm not such a well-known economist). He even refers to Victor Fuchs as the "Dean of Health Economists"... did he read my blog post of June 1? (ha ha...don't think so, but I like to brag anyway).
Thaler points out that, given a level playing field, government run enterprises NEVER out-compete private enterprises. Only if the public plan can exact concessions from providers (through legislative means) that private plans can't, will it be successful. Thaler emphasizes the capacity of the private sector to innovate. That's JUST what I said in my final opinion against a public plan, in my July 22 post. I see the potential for hospitals and doctors to integrate into stronger networks that encourage innovation under a system of competing regulated private insurance. That's our best hope of being able to evolve a system that balances quality, costs and access to care.
One point missing from the Thaler article is that to be on a "level playing field" with competing private plans, the amount that the public plan pays to physicians must NOT be tied to the Medicare Part B fee schedule, as is currently in the bill passed by the House last month. That bill requires that physicians be paid the Medicare fee schedule +6% (in hopes that will appease the AMA). But that amount is sure to be held below the amounts that private plans can negotiate. Sounds good on its face, but it strengthens fee-for-service medicine at a time when that mode of operation has been shown to lead to overuse of visits, procedures and tests. It will slow down innovation, and it will drive out private insurers because doctors will have a choice whether they must accept the private insurance fees. If the public plan can piggy back on the Medicare rules for physican fees and participation, it will have a big cost advantage.