Obama’s Analogy of Public Option to Public Colleges Actually Hurts His Argument

September 9, 2009

In his address before Congress tonight, President Obama said this about a public option:

Despite all this, the insurance companies and their allies don’t like this idea. They argue that these private companies can’t fairly compete with the government. And they’d be right if taxpayers were subsidizing this public insurance option. But they won’t be. I have insisted that like any private insurance company, the public insurance option would have to be self-sufficient and rely on the premiums it collects. But by avoiding some of the overhead that gets eaten up at private companies by profits, excessive administrative costs and executive salaries, it could provide a good deal for consumers. It would also keep pressure on private insurers to keep their policies affordable and treat their customers better, the same way public colleges and universities provide additional choice and competition to students without in any way inhibiting a vibrant system of private colleges and universities.

Public colleges and universities not only rely on billions of dollars in government subsidies (which he says the public option would not receive), public colleges and universities do indeed crowd out private colleges, largely because of these subsidies. For a California resident, UC-Berkeley (probably the best public university in the nation) is indeed a lower-priced substitute for Harvard University. To say otherwise would show ignorance of basic economics.

Another question on the public option: Supporters claim it is necessary due to a lack of competition. But if there is a serious lack of market competition in this market, how does it persist (is there possibly a regulation that could be fixed that is causing it or another significant barrier to entry?) and why not pursue anti-trust action against the companies? Obama seems to be arguing that there are also X-inefficiencies in these insurance companies as a result of a lack of competition, which would further the case for government action. However, even in the presence of these market failures, is the government becoming just another seller the best option?

Some may say that there are other problems with the private insurance market (like preexisting conditions, denial of care, etc.), but other regulations (which are in the House bill) would supposedly solve that problem without a public option (although there is no such thing as a free lunch on any of these regulations).


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