Does size matter when it comes to Public Options? Yes and no.
- Its not the size its what you do with it when it comes to Public Options. Even a relatively modest program could have large impacts on pricing decisions across the health insurance industry.
- It doesn't follow therefore that because the PO's we've been offered were marginal in terms of numbers of people covered, that the impact of removing this option on costs will be likewise marginal.
- If this is true, then people like me for whom the demise of the PO ( or an extension of Medicare) have switched us into the Kill the Bill camp may be many things, but we're not being irrational as this aspect of HCR was a key component in cost control for everyone, let alone its actual impact on those who would have benefitted from it directly.
Does size matter when it comes to the PO? Yes and no.
The amount of pricing power that a firm has in an industry is affected by many things. One very important variable is the degree of competition in that industry. Other things being equal, an industry with many firms supplying the good in question will be more competitive than one with few or only one supplier. Another important consideration though is the degree of difficulty involved in other firms entering the same industry. 'Barriers to entry' as they are called are very important in some industries because if they are high enough a firm can raise prices safe in the knowledge that no new firms will enter the industry because its really hard or expensive to do so.
When barriers to entry are low , on the other hand, then even if there aren't very many other firms actually producing the good in question, the implied threat of new entrants will exert downward pressure on prices.
In the case of the health insurance industry, one way to look at the PO is to see it as a big lowering of the barriers to entry for a credible competitor. Even if it starts with a relatively modest eligible population and even if in fact it stays like that, it is a credible potential entrant to the wider market if insurance companies are too greedy. The threat that the Public Option will be extended to those segments of the market where gouging is taking place will exert at least some downward pressure on prices.
Extending Medicare down the age range has a similar impact.
This shouldn't be taken as an endorsement of triggers, because they are written in such a way as to be almost impossible to pull so the threat is not a credible one. On the contrary, given the difficulties involved in setting up a PO, only an actual existing one would likely have this implicit threat property.
Unfortunately, its very hard to try and quantify how real such effects are because its extremely difficult to determine how large barriers to entry are in different industries and then work out how much impact they have on pricing. So any who wish can simply write off this argument as delusional etc. But if you bear with this line of reasoning for a moment what it implies is:
Its not the size its what you do with it when it comes to Public Options. Even a relatively modest program could have large impacts on pricing decisions across the health insurance industry. Insurance companies could for sure still raise prices, but they would have to do so knowing that each unwarranted rise would raise the probablilty of an extension in the PO coverage range. It doesn't follow therefore that because the PO's we've been offered were marginal in terms of numbers of people covered, that the impact of removing this option on costs will be likewise marginal. Notice that none of this depends on or takes into account the impact that a PO will have on suppliers of health care. For these relationships, size probably matters more but thats a separate effect that isn't really relevant to this one ( though of course perfectly consistent with it).
If you've bothered to read this far, my thanks. This is a modest diary with a modest aim. I'm just trying to elaborate on one small aspect of the debate and I'm purposely ignoring all of the other pros and cons involved, this is a technical point and rather dull and dry but I do think it was worth making.