Obamacare's "public plan" is built on a Medicare myth

When Pres. Obama did his hour-long pitch for a government takeover of the US healthcare system on ABCNews, he offered a standard defense of a government-run insurance plan:

The concern, [Charlie] Gibson articulated, is that such a plan wouldn’t be offered on a level playing field.

The president rebuffed that, arguing that “we can set up a public option where they’re collecting premiums just like any private insurer and doctors can collect rates,” but because the public plan will have lower administrative costs “we can keep them [private insurance companies] honest.”

However, the same day Pres. Obama said that, the Heritage Foundation issued a report by Robert A. Book, Ph.D., showing that:

[O]n a per-person basis Medicare’s administrative costs are actually higher than those of private insurance–this despite the fact that private insurance companies do incur several categories of costs that do not apply to Medicare.

Pointing this out is sufficiently dangerous to the Left that New York Times columnist Paul Krugman attacked Book’s study — or, more accurately, attacked the Heritage Foundation, as ad hominem is twice as good coming from someone who used to advise Enron. Unfortunately for Krugman, the NYT allows comments, thus allowing Book to embarrass Krugman on his own site.

Moreover, Krugman’s attempted attack did not even address the point Book made in passing, but which Merrill Matthews notes with a bit more detail:

Public figures for Medicare’s administrative costs count only what it takes to print reimbursement checks. Normal operating costs — rent, management, health insurance, taxes, capital to start a business and new equipment — which private insurers must include in their administrative costs, are counted elsewhere in the federal budget.

Official Medicare administrative costs simply exclude what most companies must include. No administrative cost savings exist in the public plan, and the true costs will never be counted because they’ll be hidden in the federal budget.

For that matter, as Shikha Dalmia recently pointed out:

[L]ower administrative costs do not necessarily mean greater efficiency. Indeed, the Congressional Budget Office analysis last year chastised Medicare’s lax attitude on this front. “The traditional fee-for-service Medicare program does relatively little to manage benefits, which tends to reduce its administrative costs but may raise its overall spending relative to a more tightly managed approach,” it noted on page 93.

In short, Medicare — our already-existing government-run health insurer — does not have lower adminsitrative costs. That myth is based on fuzzy math, the program’s own laxity, and the fact that it gets to hide its costs elsewhere in the federal budget. Indeed, that last factor is the sort of unfair competition that is essential to the government-run plan envisioned by the Left. Pres. Obama claims he wants to keep private insurers honest, but he’s not being honest himself.

(Thanks to Craig Newmark via Mary Katharine Ham.)