Public Policy the Obama Administration's Essay

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This is because individuals, especially those with families, view a health plan as an essential hedge against risk of catastrophic illness or injury. The public option will cap the price of insurance, so that buyers are no longer price takers above that point. This will force the private insurers to control costs or offer more coverage in order to attract customers. Corporations may forgo private insurance altogether if the cost is higher than the tax they would pay -- again either forcing the insurers to lower prices and/or control their costs.

Another intended outcome is that with greater influence over health care costs via their insurance program, the federal government will be able to lower or at least slow the rate of growth of those costs. This capability would come from increased bargaining power over health care providers and drug companies. Medicare, it has been pointed out, pays less to providers than do insurance companies (Krugman, 2009). This outcome would likely hold.

An unintended consequence may be the improvement of U.S. competitiveness in business. The public option would allow companies to shift their employees to the government plan. This would lower their cost of health care. They could increase wages somewhat, lower prices and be able to retain more jobs. More employers could remain in the U.S. instead of offshoring jobs. Workers would have more freedom to switch jobs. At present many workers are being underutilized because they are afraid to leave their jobs because they would lose their insurance.

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The economy would gain a boost that would offset much of the GDP decline that would occur from greater health care cost control.

Another unintended consequence is that insurance companies may decide to exit the industry. They will have a difficult time competing against a government entity with a lower cost of capital, different restrictions on business and artificial pricing. As such, they may prefer to focus their efforts on other businesses. This would reduce competition in the health care industry and may increase competition in other insurance lines.

The public option is a good policy. The goal of the health care system should not simply be to increase shareholder wealth. Goals of this system should also be measured in life expectancy, quality of life and other health metrics. The increased bargaining power that the government would gain from the public option would allow it to drive down costs, even if just slightly. This would avoid a major debt crisis in the future. The insurance companies may decide to exit the industry if they cannot compete, and this may reduce competition. However, because they are not oriented towards the types of objectives that the federal government is oriented towards, this unfortunate unintended outcome does not outweigh the benefits of the plan.

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